In the UK news that inflation has fallen for the first time in more than a year saw sterling fall against the dollar.

This morning the dollar was at 1.7315 to the pound, while the euro was at 1.4861.

The Office for National Statistics says that its Consumer Prices Index shows that inflation has dropped to 2.3 per cent.

Down from 2.5 per cent in September, the news prompted a shift in the trajectory of sterling, as experts suggested a rate cut may now be on the cards ahead of Christmas.

With the government now closer to its inflation target of two per cent, the likelihood of a rate cut has risen.

"While it is clearly premature to sound the all-clear on inflation, the October consumer prices data are largely reassuring for the Bank of England and boost hopes that inflation has peaked," commented Howard Archer of Global Insight.

"We believe the door is opening for an interest rate cut early in 2006 if the economy fails to show sustained significant signs of improvement over the next couple of months."

Industry observers will now study the Bank of England's inflation report due out tomorrow for further clues.