LONDON - BRITAIN'S inflation rate slowed to an annual rate of 1.8 per cent in June, at last falling below the official target for the first time in 20 months, official data showed on Tuesday.

It was the lowest level for the consumer price index since September 2007, when it was last below the government 2 percent target. The CPI rate has fallen every month except once since September's inflation peak of 5.2 per cent.

Sliding food prices, particularly for meat, milk and fruit, were the main factor behind the fall in June. A year earlier, food costs were rising sharply, the Office for National Statistics said.

'This is no one-off,' said Jonathan Loynes, chief European economist at Capital Economics. Given the recent drop in wholesale food prices and lower import prices, 'further falls in food CPI inflation are likely over the coming months,' he said.

The Bank of England has forecast that the annual consumer price inflation rate is likely to fall below 1 per cent later this year.

Lower prices seem to have encouraged more consumer spending. In fact, the British Retail Consortium reported that retail sales were up 1.4 per cent in June on a comparable basis as warm early summer weather raised demand for summer clothes, outdoor goods and food.

June's increase, the third in six months, more than made up for the 0.8 per cent fall recorded in May.

Freddie George, retail analyst at Seymour Pierce, said the June gain was less than robust, considering the weather was more favorable this year. 'In addition several of the department stores started their summer sales early in June, and we believe there has been a higher level of discounting to stimulate sales,' he comment.

The ONS said the retail price index - which includes housing costs such as mortgage interest payments and council tax and is used in wage negotiations - fell to minus 1.6 per cent, the lowest since records began in 1948. Falling mortgage rates were a key factor in dragging the index into negative territory; the Bank of England's key lending rate is now 0.5 per cent, compared to 5 per cent a year ago. -- AP