Falling power bills hold inflation

The Consumer Prices Index (CPI) remained unchanged at 1.8% in September - its lowest rate since March last year - figures from the Office for National Statistics (ONS) showed.

The CPI was less than the 1.9% forecast by economists, and remains below the Bank of England's 2% target - offering possible hopes of an interest rate cut.

The lower-than-expected inflation figures came despite a record monthly increase in the price of a pint of milk during September - up 4p on average, - the ONS said.

Overall prices for milk, cheese and eggs rose 6% last month, while average costs for butter and margarine soared by 15% as supermarkets hiked prices. The soaring dairy costs were partially offset by lower vegetable prices.

The biggest downward impact on CPI came from falling gas bills continuing to filter through to households after price cuts among energy firm. This compares with a year ago when fuel bills were rising.

Lower clothing and footwear costs - especially for winter coats - compared with last year also helped keep a lid on inflation.

Oil prices reached record highs during September but this had less impact on inflation than expected. Petrol prices fell by less than a year ago, adding to inflationary pressure, but this was counteracted by lower air and sea fares.

The headline measure of Retail Prices Index inflation - seen as a more representative inflation measure as mortgage costs are included - fell back from 4.1% in August to 3.9% last month.

Interest rates remained unchanged in September, compared with a year ago, when mortgage lenders passed on the Bank of England's August 2006 interest rare hike to homeowners.