British inflation softened last month, official data showed yesterday, dampening the threat of higher interest rates in an economy braced for emergency measures to curb the nation's record deficit.

Consumer Prices Index 12-month inflation, the government's target measure, fell to 3.4 per cent in May from a 17-month peak of 3.7 per cent in April, according to the Office for National Statistics.

The reading remained above the Bank of England's government-set target of two per cent but was less than market expectations for a drop to 3.5 per cent.

Economists said the news would likely dissuade the British Central Bank's monetary policy committee from hiking rates any time soon.

"May's UK consumer prices figures provided some reassurance that the MPC will be able to avoid the nightmare scenario of having to raise interest rates just as an enormous fiscal squeeze hits the economy," said Jonathan Loynes at the Capital Economics consultancy in London.

British Chancellor of the Exchequer George Osborne will deliver the new coalition government's emergency Budget next Tuesday and is widely tipped to axe public spending and raise taxes, in order to cut the deficit.

The ONS added yesterday that, on a monthly basis, CPI inflation rose 0.2 per cent in May from the previous month.

Downward price pressures came from the falling cost of meat, fruit, alcoholic drinks and tobacco. However, petrol prices rose in May - but at a slower pace compared with a year earlier.

Despite softer inflation, economists added that the outlook was tilted to the upside, and cited widespread speculation that Osborne will lift taxation on goods and services next week.

According to various media reports, Mr Osborne will lift the level of value-added tax to 20 per cent, from the current level of 17.5 per cent.

"If, as seems likely, VAT is increased from 17.5 per cent to 20 per cent, this will have a temporary upward impact on inflation," said economist Howard Archer at the IHS Global Insight consultancy.