Interest rates are set to tumble further after latest figures indicated inflation is falling at its fastest rate in a generation.

Official figures from the Office for National Statistics today showed factory-gate inflation - the prices British manufacturers are charging - dropped by 1% from September to October. That is the biggest fall since this data was first officially collected in 1986 and bigger than anyone in the City had been predicting.

It means year-on-year factory-gate rises are running at 6.8% - their lowest rate since March, when the Bank first said inflation was spiralling out of control. The fall comes after a 5.6% cut in raw-materials costs, mainly oil, on the back of a slump in the price of crude.

The Bank of England's monetary policy committee, whose main aim to keep a lid on inflation, delayed big cuts in interest rates until last week because the consumer price index has been running at more than 5%. Today's figures, say economists, mean the MPC no longer has that worry.

"The plunge in UK producer prices in October gives the MPC yet another green light to continue cutting interest rates aggressively," said Paul Dales at Capital Economics. "With price pressures fading this rapidly there is nothing to stop it slashing interest rates all the way to 1%."

However, Brent crude soared 6% today, up $3.48 to $60.83 on news of China's $600 billion economic stimulus package and next month's 5% cut in Saudi supplies to Asia.