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Last Updated: Tuesday, 14 February 2006, 10:44 GMT
UK inflation level steady at 1.9%
UK inflation remained unchanged at 1.9% in January, despite rising fuel costs and soaring household energy bills.

The CPI figure is inside the Bank of England's 2% target. December's CPI was also revised downward by the Office for National Statistics, from 2% to 1.9%.

The Bank of England may now be more prepared to cut interest rates from the present 4.5%, as inflation fears cool.

The Bank's Monetary Policy Committee also publishes its key quarterly inflation report on Wednesday.

That report should provide some guidelines on its thinking with regard to its next move on the cost of borrowing.

Meanwhile, the headline rate of retail price inflation (RPI) - which includes mortgage interest payments - rose to 2.4% from 2.2% a month earlier.

The underlying rate of RPI rose to 2.3% last month from 2.0%, the ONS added.

Cheaper vegetables

Analysts had expected CPI inflation to pick up to 2.1% from December's originally reported 2.0%.

The ONS said the largest upward pressure on the CPI figure came from transport, as fuel prices rose and airfares fell less than this time last year.

A dovish inflation report... and soft retail sales on Thursday could open the door to a March rate cut
Jonathan Loynes, Capital Economics

Telephone calls from landlines also cost more, although on the downside were lower furniture and furnishings costs as well as cheaper financial services.

Additional downward movement was from lower food prices, particularly vegetables, and from clothing and footwear.

The figures come a day after the ONS revealed that manufacturers passed on crude energy cost increases to customers during January, rather than squeeze their own profits.

Interest rates

With inflation now below the Bank of England's guidelines a near-term interest rate cut is a possibility once again.

"A dovish inflation report... and soft retail sales on Thursday could open the door to a March rate cut," said Jonathan Loynes, chief UK economist at Capital Economics.

However others said the MPC may prefer to remain cautious for the time being.

Howard Archer, economist at Global Insight, said he would not rule out a 25 basis point interest rate cut before May.

But he added: "We suspect the majority of the MPC will still be reluctant to act before May given uncertainties over the strength of consumer spending, recently firmer house prices and a lack of conclusive, sustained evidence that wage moderation is continuing."

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