The annual rate of inflation eased to 1.2% in September from 1.3% a month earlier and down from 1.8% a year ago.

Meanwhile the euro-zone nations saw inflation fall to 1.0% from 1.2% as its trade surplus also slipped.

Inflation in the UK is above the EU average. The EU's measure of UK inflation put it at 1.5%, down from 1.8% in September 1997.

However, the British Government's own measure of inflation currently stands at 2.5%, in line with its target rate.

Deflation fears

Euro nations control inflation

The rate of price increases fell in most EU nations but rose in Ireland, Portugal and Italy.

Greece continues to have the highest EU inflation rate, at 5%.

Meanwhile, Sweden slipped into deflation, with prices falling 0.1% and Belgium, Germany, France, Austria, and Luxembourg all recorded inflation rates below 1%.

Euro-zone authorities have drawn criticism from some economists for taking too hard a line on reducing inflation, while ignoring the threat to growth and employment from a global economic slowdown.

Trade surplus falling

The eleven countries of the euro-zone are running a substantial trade surplus with the rest of the world.

But exports are no longer as robust as one year ago. The world economic slowdown has caused the euro-zone's trade surplus to fall to 8.3bn ecus ($10bn) in June, down from 10bn ecus ($12bn) a year earlier.

The euro-zone's trade surplus for the for the first six months of 1998 was 32.8 billion Ecus ($39.4bn) down from 36.2bn Ecus ($43.44bn) a year ago.

Last week, Germany decided to leave interest rates unchanged in the face of calls to match cuts in the US, UK and elsewhere.