The fall in inflation should not detract the Government from continuing to take measures to create conditions which make a business-led recovery more viable.

While welcoming the fall in consumer price inflation from 3.5 per cent to 3 per cent, Will Rogers, policy adviser at Birmingham and Solihull Chamber of Commerce and Industry, said more needed to be done to stabilise the recovery.

He said: “In order to sustain recovery, it is vital that the government assists firms to find new export markets and cancel the planned one per cent rise in employer National Insurance contributions, scheduled to take effect in April 2011.

“Today’s announcement should not detract from the overall picture which suggests that businesses still face serious issues.”

The Office for National Statistics (ONS) said prices for items such as petrol and household goods saw smaller increases than 12 months earlier, while British Gas also cut gas prices.

The ONS added that toys and games also dampened inflation this year as prices were unchanged compared with a big increase in costs a year ago.

But factors such as the VAT cut - and subsequent return to 17.5 per cent in January - have introduced volatility into the monthly figures, as well as the desperate measures undertaken by firms to survive the worst of the recession last year.

Far less discounting by retailers this year than 12 months ago - when most shops were slashing prices to tempt in consumers - put upward pressure on the cost of living in January, alongside the rise in VAT.

Meanwhile, prices across the board rose at a far lower rate between January and February than during the same period last year, when CPI inflation surged at a record monthly rate of 0.9 per cent.

Petrol prices rose by a record 3.2p per litre a year ago to stand at 89.5p, although this time round average prices rose by a far smaller 0.9p. Food and drink costs also rose by less than a year ago.

The only major upward impact on inflation this month came from women’s clothing, where prices rose by more than a year ago.