Britain's inflation rate slowed much more than expected in January as the price of fuel fell, boosting expectations that borrowing costs have peaked.
The Office for National Statistics said consumer prices fell 0.8% last month, taking the annual rate to 2.7% from a record 3% in December.
Analysts had not expected the steep drop in the annual rate, the biggest in four years.
Markets have been pricing in at least one more hike after being wrongfooted last month when the Bank of England lifted borrowing costs to 5.25%.
Inflation has been above target since May 2006 and BoE Governor Mervyn King narrowly escaped having to write an explanatory letter to the British government last month on why inflation had deviated far from the 2% target.
Transport costs accounted for most of the downward impact on CPI, taking 0.18 percentage points off the annual rate as fuel prices fell this year compared with a rise in 2006. Food and telephone charges also weighed while cigarette prices contributed a small upward effect on inflation.
There may be further downward effects in the near future from lower utility bills as providers respond to the fall in wholesale gas prices. Petrol prices, however, have risen slightly in the last month.
