LONDON - THE cost of living in Britain rose unexpectedly in February as higher prices for food and fuel and a weaker pound offset the deflationary effects of the economic crisis, official data showed on Tuesday.

The annual consumer price index rose to 3.2 per cent from 3.0 per cent in January, the Office for National Statistics (ONS) said.

Most analysts were expecting that rate to drop as weaker demand amid the economic crisis causes retailers to cut prices to attract shoppers.

Rising prices for food and drink, recreation and transport - mainly higher fuel costs - pushed the consumer price index (CPI) higher after four consecutive months of falling. The government's policy is to hold consumer price inflation at about 2 per cent.

The governor of the Bank of England, Mervyn King, said the lower value of sterling, which raised the price of imported goods and components, was a key factor in pushing consumer prices higher.

'It is likely that over the next year CPI inflation will move below target, although the profile of inflation could be volatile,' Mr King said in the letter he is required to write to the Treasury chief every time the CPI inflation rate exceeds 3 percent.

Retail price inflation - which includes housing costs - fell from 0.1 per cent in January to zero, mainly because of the fall in variable mortgage interest rates as the Bank of England cut rates to stimulate the economy. The underlying rate of retail price inflation rose to 2.5 in February from 2.4 in January.

Many economists had expected the retail price index to fall into negative territory in February for the first time since March 1960, as slumping demand causes market prices to fall.

Howard Archer, chief European economist at Global Insight, said February's report reduced the likelihood of deflation setting this year, although the low retail price index means workers are likely to accept lower pay.

'Given that many pay awards are still linked to retail price inflation, the flat year-on-year level in February will maintain the downward pressure on wages already coming from soaring unemployment and companies' deteriorating profitability,' Mr Archer said. -- AP