LONDON - INFLATION in Britain fell in Oct for the first time in 14 months largely because of cheaper oil prices, official figures showed on Tuesday, giving the Bank of England room to cut interest rates even further as the country heads into an expected recession.

The office for National Statistics said the annual rate of the consumer price index measure of inflation dropped to 4.5 percent in the year to Oct from 5.2 percent in the year to Sept.

Analysts had expected a more modest decline to 4.7 per cent.

The decline in the annual rate was also the biggest since Jan 1997 when official figures began and based on reconstructed historical data, the fall was the largest since April 1992 when Britain was last mired in recession.

The fall was the first since August last year and stoked market expectations that the Bank of England will continue to cut interest rates aggressively over the coming months to spur a sagging economy that appears to be heading into a recession.

'The figures confirm our long-held view that inflation is yesterday's story, and that the wait-and-see approach by the Bank of England went on for far too long,' said Mr Ben Read, managing economist at the Centre for Economic and Business Research.

Though the inflation rate is still way above the government's 2.0 per cent target, the Bank of England cut interest rates earlier this month by a startling 1.50 percentage point, which took its benchmark rate down to 3.0 per cent, its lowest level in over 50 years.

The bank said in its quarterly economic forecasts last week that inflation is likely to fall further and to below target over the coming months, as the sharp drop in crude oil prices from the mid-summer highs of around US$147 (S$224.45) a barrel to around US$55 a barrel reduces transport costs, particularly the price of gas at the pumps.

Most commentators say that the Bank of England will cut its benchmark rate further in Dec, possibly by another percentage point to 2.0 per cent, as it tries to fend off possible deflation - falling prices - next year, amid rising unemployment and waning wage demands.

Central banks cut rates to spur growth, but are reluctant to do so while inflation remains a threat, as lower rates can make inflation worse.

Prices actually did fall in Oct by 0.2 per cent on a monthly basis on the combination of lower transport costs and falling food prices, particularly meat.

Mr Jonathan Loynes, chief European economist at Capital Economics, said Oct's sharp fall in inflation is 'the first step along a road that is likely to end in the first bout of deflation in the British economy in almost half a century.' -- AP