Inflation remains unchanged at 1.9%

Britain's annual inflation rate stayed unchanged at 1.9% last month, remaining below the Bank of England's 2% target for the second month in a row, official figures showed today.

The Office for National Statistics (ONS) revised the consumer prices index (CPI) for December down from 2% to 1.9%.

Under the Bank's mandate, undershooting its 2% target is as bad as overshooting. The implications from today's numbers are that the Bank's monetary policy committee (MPC) will have to cut interest rates in order to stay on target - provided the inflation numbers remain below 2%.

Today's figures came in below City expectations of 2.1% and 2.2%.

The Bank publishes its key quarterly inflation report tomorrow, which will offer further indications on the direction and timing of the next move in the cost of borrowing.

The MPC last week left interest rates at 4.5% for the sixth month running, despite pleas from manufacturers and retailers for a cut in borrowing costs.

"With consumer price inflation below the 2% target level in both December and January and clearly below the levels forecast by the Bank of England in their November quarterly inflation report, a near-term interest rate cut suddenly looks a very real possibility again," said Howard Archer of Global Insight.

Mr Archer, however, suspected that most MPC members will be reluctant to act before May given the uncertainties over the strength of consumer spending, recently firmer house prices and a lack of conclusive evidence over the level of pay settlements.

The ONS said the largest upward pressure on the CPI came from transport, as fuel prices rose and airfares fell less than this time last year. The cost of making telephone calls from landlines also increased.

But the upward pressure was cancelled out by the falling cost of furniture and furnishing, as well as cheaper financial services, where last year's increases in overdraft fees were not repeated.

Additional downward contributions came from lower prices of food, particularly vegetables, and from clothing and footwear, with prices in womenswear and childrenswear falling. Prices in menswear rose slightly.

The underlying rate of retail price inflation (RPI) was up to 2.3% in January from 2% in December, while the headline rate - which includes mortgage interest payments - was up to 2.4% from 2.2%. Both were the highest they have been since October last year.