The case for a further cut in interest rates was reinforced yesterday after inflation stayed below target for a second month running in January.
The Consumer Prices Index was unchanged at 1.9 per cent last month, leaving it below the Bank of England's inflation target of two per cent and much lower than economists' predictions of 2.1-2.2 per cent.
It boosted hopes that the Bank's Monetary Policy Committee may cut the cost of borrowing by May at least.
And the case for lower interest rates could gather further momentum today when the Bank publishes its own key quarterly inflation report.
Interest rates were last cut in August from 4.75 per cent to 4.5 per cent.
Economist David Page, of Investec Securities, said: "These were a much better set of figures than expected with inflation markedly lower than the markets had been looking for.
"It obviously makes the case for rate cuts more aggressively as the Bank has been worried about short term inflation pressures."
Mr Page said interest rates needed to be reduced to encourage economic growth, which has been below trend for six quarters, while unemployment is rising.
"We are not convinced where inflationary pressure is likely to come from and given that the Bank is tasked to keep it at two per cent a cut in interest rates makes sense," he said.
That would be good news for the high street and manufacturing industry, both of which suffered from last year's spending slowdown.
Economist James Knight-ley, of ING Bank, said: "With consumer spending set to remain weak as higher utility bills, taxes and employment continue to sap purchasing power and confidence, price competition is likely to intensify. As such, we expect inflation to remain on a downward trend."
James Cooper, policy adviser at Birmingham Chamber of Commerce and Industry, said: "The case for an interest rate cut next month must now be irresistible and would provide a much needed boost for manufacturing. The risk of gas and oil prices pushing inflation up does not seem to be material-ising. Perhaps the MPC should now look to giving a keener edge to the UK economy."
But the Centre for Economics and Business Research said rising oil prices, energy bills and costs of raw materials would feed through to consumer prices in the coming months "and keep inflation uncomfortably close to the Bank's target".
Jonathan Said, an economist at CEBR, said: "We do not believe the inflation figure raises the probability of lower interest rates any time soon because of lingering input price concerns."
The latest figure took the market by surprise.
Although petrol was up in January along with the cost of airfares, huge rises in gas and electricity bills were put off - energy suppliers have signposted that they are nevertheless imminent.
The ONS said the upward pressure from transport was further offset by the falling cost of furniture as well as cheaper clothing and footwear, with prices in womenswear and childrenswear falling, although there was a slight increase in menswear.
The cost of seasonal foods, particularly vegetables, was also lower despite recent rises seen in Northern Europe which usually filter through to the UK.
The underlying rate of Retail Price Inflation was up to 2.3 per cent in January from two per cent in December, while the headline rate - which includes mortgage interest payments - jumped to 2.4 per cent from 2.2 per cent.
Both were the highest they have been since October last year.