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Last Updated: Thursday, 20 April 2006, 08:56 GMT 09:56 UK
UK inflation slows unexpectedly
Milk bottles
Milk and dairy goods have seen a drop in prices
UK inflation rose less than expected in March, after a dip in milk and dairy goods prices and a fall in the cost of air fares, official data has shown.

The Consumer Price Index (CPI), the official inflation rate, rose 1.8% last month, down from February's 2% growth.

This puts inflation at its slowest pace in more than a year, and below the Bank of England's 2% target.

The rate of headline RPI - which includes mortgage interest payments - remained unchanged at 2.4%.

Supermarket price war

Thursday's figures came as a surprise to economists, who had predicted that the CPI rate would either remain at 2% or drop to 1.9%.

The unexpectedly large fall in inflation is likely to increase calls for the Bank of England to reduce interest rates.

Rates are currently on hold at 4.5% for the eighth month in a row.

Milk prices fell by an average of 2p per pint in March after a supermarket price war, while air fares declined for the third month in a row.

The biggest upward pressure on inflation came from housing and household services, as gas and electricity bills soared.

Petrol prices were little changed.

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