Inflation eased to 1.6% in July, as stores slashed prices in the summer sales and food prices continued to fall according to the latest figures from the Office for National Statistics (ONS).
Price rises, as measured by the consumer prices index (CPI), eased to 1.6% in July, from 1.9% in June - this was below expectations of 1.8%.
The pound fell by almost a cent against the dollar to $1.6639 as the fall in inflation eased pressure on the Bank of England to raise interest rates in the short term.
CPI inflation has now been at or below the Bank's target for eight consecutive months.
Falls in clothing and footwear prices provided the largest contribution to the fall in the rate with deeper discounts on the high street between June and July this year knocking more than 0.2 percentage points off the headline CPI rate, the ONS said. Although it added that the decline was also due to the later timing of this year's summer sales.
Prices fell by 5.7% between June and July compared with a smaller 3.2% decline in 2013, while food prices fell by 0.4%.
The retail prices index (RPI) measure of inflation eased to 2.5% last month, from 2.6% in June. No longer regarded as an official statistic by the ONS, RPI is still used to set fare increases,
Despite the fall in inflation, Tuesday's data will offer no respite for Britain's hard-pressed households, with average earnings growth remaining well below price rises.
Total weekly earnings fell by 0.2% in the three months to June, compared with a year earlier, marking the first fall since 2009. The Office for National Statistics also said regular pay rose by just 0.6% over the same period.