British underlying inflation staged a surprise fall last month as tumbling food and clothing prices outweighed rising petrol and housing prices.
Underlying inflation excludes volatile home loan costs.
The Office for National Statistics said this morning the inflation rate dropped back to 2.7 per cent last month from 2.8 per cent in November, which had been the highest in over four years. Economists had expected it to remain steady or even rise to 2.9 per cent last month.
The month-on-month rise in prices was 0.2 per cent in December, the same as in November.
Financial markets reacted positively with government bond prices rising slightly on the perception that an interest rate rise was slightly less likely soon.
The pound was steady at $1.605 and the FTSE 100 index of leading shares remained 28 points better on the day at 3,806.