UK inflation fall fuels interest rate cut hopes

British inflation fell below government targets last month, improving the prospects for further Bank of England reductions in interest rates next month. The annualised "headline" rate inflation measured by the Retail Price Index declined from 2.4 to 2.1 per cent, mainly due to the fall in mortgage borrowing costs as recent cuts in interest rates were passed on to borrowers. More important, the "underlying" rate, excluding mortgage interest payments, eased from 2.6 to 2.4 per cent, just below the Bank of England's 2.5 per cent inflation target set by the government. With other economic indicators signalling subdued inflationary pressures amid weakening economic activity, the Bank of England is expected to lower its repo rate from 5.50 to 5.25 or even 5 per cent next month.