Britain's inflation rate unexpectedly held steady in November as a sharp rise in petrol prices was offset by continued downward pressure from utility bills, data showed today.
The Office for National Statistics said consumer prices rose 0.3 per cent last month, leaving the annual rate unchanged at 2.1 per cent. Analysts had forecast a rise to 2.2 per cent, pulling away from the bank's 2 per cent target.
Sterling fell as traders who had expected inflation to rise bet the Bank of England would have more leeway to cut interest rates should the economy weaken sharply.
The Bank of England cut interest rates to 5.5 per cent earlier this month, and markets are pricing in at least three more quarter-point cuts over the coming year as the economy slows.
Bank Governor Mervyn King is due to give evidence to parliament later today on financial market issues.
The biggest upward impact came from road fuel prices with average petrol prices rising by 3.5 pence per litre over the month compared with a modest fall last year. The annual rate of inflation for fuels and lubricants was the highest in more than two years.
However, there was a downward impact from utility bills as gas and electricity prices continued to come down after huge increases last year. The annual rate of inflation for electricity and gas was the lowest since records began in January 1997 at -5.6 per cent.
Still, utility bills are unlikely to exert a downward influence for long. Oil prices have soared close to $100 a barrel in recent weeks and several energy companies have recently increased tariffs on their tracker products.