THE chances of a new year cut in interest rates gained momentum yesterday when figures showed inflation at its lowest level since June.

Lower petrol prices helped the Consumer Prices Index fall to 2.1 per cent last month from 2.3 per cent in October, a bigger drop than analysts had predicted.

Economists said the second consecutive monthly fall in inflation should give the Bank of England further scope to move interest rates lower if economic conditions remain subdued.

Yesterday's report brings inflation closer to the Government's two per cent target after recently hitting 2.5 per cent because of soaring energy prices.

Economist Ross Walker, at the Royal Bank of Scotland, said that in the absence of any significant pick-up in wage inflation in the New Year, the pressure on the Bank to lower base rates would increase.

Transport costs had the biggest impact on yesterday's figures, following a 3.6p fall in the average price of a litre of petrol, compared with a rise of 1.1p a year ago. There was also a downward contribution from air travel as fares on many routes fell by more than a year ago, particularly to European destinations.