Inflation falls below Bank's target

By Christina Fincher and Matt Falloon

LONDON (Reuters) - Inflation in Britain fell below the Bank of England's two percent target for the first time in almost two years in June, helped by food prices which eased after surprising stickiness earlier in the year.

Figures from the Office for National Statistics on Tuesday showed consumer prices rose 0.3 percent last month. That took the annual rate to 1.8 percent, the lowest since September 2007, from 2.2 percent in May.

The broader measure of retail price inflation, which includes housing costs, fell an annual 1.6 percent, its sharpest drop since records began in 1948.

Analysts predict inflation will fall further in the coming months as the recession erodes pricing power, giving policymakers more scope for stimulus.

"June's consumer price figures should help ease concerns that inflation is proving to be significantly more stubborn in the UK than in some other countries," said Jonathan Loynes at Capital Economics.

"With inflation set to fall further, there is no urgency for policymakers to start to tighten policy conditions to keep price pressures under control."

Incoming Monetary Policy Committee member Adam Posen gave a strong defence of the Bank's quantitative easing programme on Tuesday and said he was more worried about undershooting the inflation target than overshooting it.

"The risks clearly are more about deflation than inflation in the short term," Posen told lawmakers.