Sterling moved sharply higher on currency markets, rising 2 pfennigs to 2.8576 deutschmarks, after disappointing inflation figures indicated that the Bank of England is likely to postpone the timing of further reductions in UK interest rate. The annual rate of inflation measured by "headline" Retail Price Index was 2.4 per cent last month, down from 2.8 per cent in December, mainly due the impact of interest rate reductions on mortgage interest costs.

But the "underlying" rate of inflation excluding mortgage interest costs remained stubbornly unchanged at 2.6 per cent, just above the government's 2.5 per cent target set for the Bank of England.

Reduction in the Bank of England's repo rate from 7.5 to 6 per cent over the past five months has been sanctioned on the view that risks of exceeding the 2.5 per cent inflation target are much less than risks of falling below the target.

If the new inflation figures indicate that the Bank's is too sanguine, further reductions in UK interest rates are likely to be postponed for some months until the outlook for inflation becomes clearer.