Britain's annual inflation rate dropped in December to its lowest since April 2008 amid falling gas prices at the pumps and lower sales taxes in the pre-Christmas trading period, official figures showed today.

The Office for National Statistics said the annual rate of inflation fell to 3.1% in the year to December from 4.1% in November.

December's rate was the lowest since April's 3.0%and way down from September's peak of 5.2%, although the fall was not as big as anticipated. The consensus among economists was for the rate to fall to 2.7%.

The statistics office said the largest price falls were seen in clothing and footwear. Those were weighed by the government's decision to cut sales taxes by 2.5% points to 15% from 1 December in an attempt to revitalise consumer spending in the run-up to Christmas. Big discounting also contributed to lower inflation.

In addition, transport costs fell, with gas prices down in the wake of sharp declines in the price of crude oil.

There was a small rise in the prices of alcohol and tobacco, while food costs did not fall as much as many analysts were predicting.

Most economists think inflation will fall further in the months ahead, with some even predicting that Britain will suffer a bout of deflation - falling prices. On a monthly basis, prices actually fell 0.4% in December.

"The weakness of core inflation (which strips out food, energy and food costs) and the further downward pressure likely to result from the opening of a large amount of slack in the economy, points to a growing danger of a more fundamental and longer-lasting period of deflation further ahead," said Jonathan Loynes, economist at Capital Economics.

The Bank of England has cut interest rates aggressively in the last few months from 5.0% in October to the current 1.5% in an attempt to breathe life into the economy and on firm expectations inflation would fall from its summer highs.

The Bank of England aims to keep inflation around 2% in two years time.

Elsewhere, the statistics office said the retail price index, a broader measure of inflation that also includes mortgage payments, slumped at its fastest rate in more than 28 years, due to house price declines and the recent dramatic interest rate cuts.

RPI inflation - which is used as a benchmark in many British wage deals - plunged to 0.9% in the year to December from 3% the previous month.