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LONDON (Thomson Financial) - Inflation in the UK fell by the biggest amount in over five years during July, pushed down by falls in food prices and furniture, as well as utility and petrol costs and taking the key CPI rate below the Bank of England's target rate, official figures showed.

The Office for National Statistics said the annual CPI inflation rate slumped to 1.9 pct in July from 2.4 pct in June, well below analysts' forecasts for a decline to 2.2 pct and the steepest drop since May 2002.

This is the lowest CPI rate since March 2006 and is also the first time since that date that inflation has been below the 2.0 pct level that the Bank of England is charged with targeting.

The news is likely to diminish expectations for a further interest rate rise in the autumn, particularly in the light of the recent turmoil on financial markets.

In its latest quarterly inflation report released last week, the BoE said it expects inflation to fall back during the second half of the year and settle around the 2.0 pct target. This assumes that interest rates follow market expectations for one more quarter point rise to take the main repo rate to 6.0 pct.

Rising inflationary pressures have caused the central bank to raise interest rates five times in the last year, taking the repo rate to its current level of 5.75 pct.

The statistics office said the biggest downward effects on the CPI rate came from food prices, as supermarkets led price cuts across a range of products, including bread and cereals, meat, fish, fruit and vegetables, as well as a record monthly fall in furniture prices.

There were further downward effects from drops in petrol prices and utility bills, as well as price reductions in digital camcorders, personal computers, recording media and theatre admissions.

The only large upward effect came from clothing and footwear, with the effect of summer sales being smaller than the same time a year ago, the ONS said.

On a month-on-month basis, CPI was down by 0.6 pct following a rise of 0.2 pct in June, below expectations for a 0.2 pct decline and the sharpest fall since January of this year.

Today's data also showed the underlying or 'core' CPI measure -- which excludes energy, food, alcoholic beverages and tobacco -- fell to 1.7 pct in July from 2.0 pct in June. Analysts had expected the rate to remain at 2.0 pct.

Compared with June, core CPI fell by 0.5 pct, following a 0.2 pct increase in June.

Elsewhere in today's release, the statistics office said the annual RPI rate of inflation, which is used in pensions payments and often used in pay negotiations, fell to 3.8 pct from 4.4 pct in June, the lowest since October 2006 and the sharpest fall since November 2001.

Analysts had forecast a much more moderate dip to 4.3 pct.

On a monthly basis, RPI inflation was down 0.6 pct, following a 0.5 pct rise in June, against forecasts for a smaller 0.1 pct fall.

Meanwhile, the RPIX measure, which excludes mortgage payments, was up 2.7 pct year-on-year after a 3.3 pct increase in June, the smallest since April 2006. This is the biggest decline in the index since April 1991.

The annual RPIX measure, however, remains above the 2.5 pct annual rate that the BoE was previously charged with targeting and has been above that level since May 2006.

On a monthly basis, RPIX was down by 0.6 pct in July after a 0.4 pct rise in June.