The Office for National Statistics (ONS) has released figures showing that the annual rate of inflation was unchanged in March. The ONS said that consumer price index (CPI) inflation rose by 0.4 per cent in March but that the annual rate of inflation was steady at 2.5 per cent.

The ONS also said that retail price inflation (RPI) increased 0.3 per cent in March, taking the annual rate to 3.8 per cent, the lowest since July 2007.

The ONS said that furniture, household equipment and maintenance and recreation and culture components were the biggest downward contributors to CPI. However they noted that transport cost increased at their highest annual rate since records began in 1997.

RPI was brought down by mortgage lenders passing the February 0.25 per cent interest rate cut by the Bank of England to customers. Apart from mortgage payments, retail prices rose 0.5 per cent in March and were 3.5 per cent higher compared to the same time last year, according to the ONS.

The latest figures will be a relief to the Bank of England who are likely to feel more comfortable cutting interest rates to ease the effects of the credit crunch. Until now the Bank has been reluctant to cut rates too much for fear of high inflation.