Inflation falls at record pace

By David Milliken and Christina Fincher

LONDON (Reuters) - Lower prices of petrol and pork in October helped consumer price inflation to post its biggest drop since records began, falling to an annual rate of 4.5 percent from September's peak of 5.2 percent.

Economists had expected Tuesday's data to show inflation had eased only to 4.8 percent. The fall made a big Bank of England interest rate cut more likely in December, following a spectacular 1.5 percentage point reduction early this month which took rates to 3.0 percent -- their lowest level since the 1950s.

"(This is) encouraging news," said George Buckley, chief UK economist at Deutsche Bank. "That leaves the door open for a bigger cut than we're currently expecting at the Bank's December meeting, which is 50 basis points."

The Bank of England aims for consumer price inflation to be at 2 percent over a two-year horizon but warned last week it was likely to undershoot this target, possibly by a large margin.

The fall in CPI inflation was also reflected in retail price inflation, an older measure that includes housing costs and is used as the basis for many wage deals, pensions, and inflation-linked bonds.

RPI inflation fell to 4.2 percent from 5.0 percent, the biggest one-month drop since January 1993.

The CPI series started only in January 1997, although the Office for National Statistics said that estimates of CPI inflation before then suggested there would have been a bigger drop than last month's in April, 1992.

Gilts rallied after the data, with two-year yields dipping below 2 percent for the first time since records began 30 years ago.