Inflation did not rise as much as expected in January, meaning the Bank of England could still cut interest rates significantly if the economy slows sharply this year.

The Office for National Statistics said that consumer prices were 2.2 per cent higher than a year ago during January, below forecasts of 2.3 per cent though higher than any time since June 2007.

Mortgage payers got a break last week when the Bank of England cut interest to 5.25 per cent. But in doing so it warned that it was unlikely to follow the model of the United States and slash rates.

“It will be some time yet before the Monetary Policy Committee’s inflation concerns evaporate,” said Capital Economics’ Jonathan Loynes.

“Nonetheless, there is some encouragement here that weaker demand is doing the job of containing price pressures.”

Most surveys this year have indicated a slowing economy and swiftly rising prices, creating what Bank Governor Mervyn King has dubbed the most challenging economic environment in a decade.