Britain's inflation rate did not budge for the second month in a row in February, defying expectations of a rise as shops did not raise prices after the new year sales as much as last year.

The Office for National Statistics said yesterday consumer prices rose 0.3 per cent on the month, leaving the annual rate steady at 1.6 per cent - where it has been since December - still below the Bank of England's two per cent target.

Economists said the figures did little to settle the debate over whether interest rates would rise again in the next few months as the central bank tries to keep a lid on inflation over the next two years.

"I think there is still one more quarter-point hike to come, but it's probably August rather than May," said Ross Walker, UK economist at RBS Financial Markets.

Still, the pound fell while interest rate futures rallied as dealers reckoned that the latest figures at least removed pressure for an imminent rate hike.

Dealers had already scaled back expectations of near-term rate increases earlier after BoE policymaker Kate Barker said late on Monday that predicting inflation away from its target did not automatically entail a rate rise.

The ONS said the biggest upward effect on prices came from transport, as fuel costs increased and airlines raised their fares on domestic and European routes, possibly in response to the soaring price of oil.

Household bills, such as gas and electricity, were also up at their sharpest pace since current records began in 1997.

Against this, however, retailers did not raise prices as much as they usually do after the New Year sales, perhaps as there have been signs that consumer demand is faltering.

The ONS said February recoveries from sales for furniture and household equipment were not as strong as a year ago while there were reduced prices for toys and hobby-related items like computer games.

But economists said that policymakers would be concerned that the oil price kept hitting record highs.

"The continuing rise in the cost of oil suggests that further petrol price increases are in the pipeline," said Simon Rubinsohn, chief economist at Gerrard. "This is likely to exert upward pressure on the CPI index even if intense competition on the high street remains a barrier to the re-emergence of genuine pricing power amongst retailers."