UK inflation unexpectedly slowed last month for the first time in eight months as discounting at supermarkets prompted food prices to plunge.

Consumer prices rose 4 per cent from a year earlier after a 4.4 per cent increase in February, the Office for National Statistics said today in London.

The cost of food fell the most in almost four years.

The data may provide some relief to the Bank of England after policy makers held off raising the key interest rate this month to aid the economy during the government's fiscal squeeze. While inflation remains at twice the central bank's target, the National Institute of Economic and Social Research said last week that the recovery remains "uncertain."

The pound dropped as much as 0.5 per cent against the dollar after the data were published. It was at $1.62 as of 9:56 am in London, down 0.6 per cent from yesterday.

Consumer prices rose 0.3 per cent in March. Food prices fell 1.4 per cent, the biggest decline since a 1.7 per cent drop in July 2007. So-called core inflation, which excludes costs of energy, alcohol, food and tobacco, slowed to 3.2 per cent after a 3.4 per cent increase in February.

Retail-price inflation, a measure of the cost of living used in wage negotiations, was 5.3 per cent in March after 5.5 per cent in February.

In a separate report, the UK total trade deficit narrowed to £2.44 billion in February from £3.86 billion in January. The goods-trade gap shrank to £6.78 billion from £7.79 billion as exports rose 1.3 per cent and imports fell 2.2 per cent.

Recent data have shown a mixed picture of the economic recovery. While a report on April 5th showed UK services expanded at the fastest pace in more than a year in March, the statistics office said the next day that manufacturing growth stalled in February.

Retail sales fell by a record in March, the British Retail Consortium said in a report today.

Bloomberg