Retail price inflation has edged downwards, the latest figures show.

The RPI index rose by 1.6 per cent in October, down from 1.7 per cent in September, the Office for National Statistics said on Monday. The RPIX rate, which excludes mortgage interests payments, remained unchanged at 2.3 per cent - below the government's 2.5 per cent target.

Falling interest rates made the largest contribution to the downward movement, with the Bank of England's 0.25 per cent cut in rates on September 18 filtering through into the figures. Cheaper fuel, light and clothing costs also contributed to the lower figures.

The latest economic indicators follow news that producer prices are dropping at their fastest rate for 40 years, with the cost of manufactured goods falling by 0.6 per cent in the 12 months to October.

Manufacturers have responded to global economic slowdown and increased competition by slashing prices, aided by a sharp decline in the cost of key inputs. Falling oil prices manufacturing costs for materials and fuel by nine per cent in the year to October. The monthly fall of 2.6 per cent was the sharpest this year.

The two sets of figures will raise expectations that the Bank of England will have to cut interest rates further to prevent inflation from falling below the government's 1.5 per cent minimum limit.