Cut-price fashion trims inflation

The steepest fall in clothing prices since records began more than 50 years ago helped cut Britain's headline inflation rate to a 16-month low in April, official figures showed yesterday.

Footware and clothing prices have fallen by 5.4% over the last 12 months, according to the office for national statistics - the sharpest annual fall since 1947, when rationing was in force.

Lower clothing and mortgage costs, and the Budget freeze on duties, pulled the headline rate down to 1.8%, from 2.3% in March.

Stripping out mortgage interest, the underlying rate used by the Bank of England to measure price pressures, unexpectedly jumped to 2% from 1.9% in March.

Although at its highest for six months, underlying inflation remained well below the government's target of 2.5% for the 25th month in a row. Economists said there was little danger that the Bank would be dissuaded from cutting interest rates further.

Danny Gabay, UK economist at Lehman Brothers, said the Bank's monetary policy committee would be untroubled. "The case for lower UK rates... has been based on the risks from a global slowdown. As long as the MPC remains concerned about growth they will keep cutting."

The upturn might have spared Sir Eddie George, governor of the Bank, from having to write to the chancellor explaining why inflation had dropped more than a percentage point below target. Many analysts had expected underlying inflation to fall below the 1.5% this month.

Geoffrey Dicks, UK economist at Royal Bank of Scotland, said that only Gordon Brown's decision to keep excise duty on fuel and alcohol unchanged and to increase cigarette duty only in line with inflation had prevented the target measure rising to 2.5%.

He estimates that freezing duties this March, after last year's above inflation rises, knocked 0.5 points off underlying inflation, counteracting sharp rises in seasonal food prices and fuel and gas prices.