LONDON (AP) – British consumer price inflation fell to 3.4 percent in May from April's 17-month high of 3.7 percent, but remains well above the official target, the national statistics agency said yesterday.

Consumer price inflation has been above the Bank of England's target of two percent since November, worrying some about the impact of record low interest rates, but analysts said the May drop was reassuring.

"A combination of the increase in the rate of value-added tax, higher petrol prices and the continued feed through of the impact of weaker sterling have been responsible for keeping inflation above three percent since the beginning of the year," said Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club.

"However, these effects are beginning to fade and the massive amount of spare capacity in the economy is likely to become increasingly influential over the coming months," Goodwin said.

The Office for National Statistics said the retail prices index – a measure widely used in wage negotiations – rose by 5.1 percent in May, compared to the 5.3 percent rate in April which was the highest since July 1991. Excluding mortgage interest payments, it was 5.1 percent higher than a year ago, down from 5.4 percent in April.

Jonathan Loynes at Capital Economics called the report "a pleasant surprise".

"Inflation worries are not about to disappear overnight. But there is some reassurance here that the (Bank of England's Monetary Policy Committee) will be able to avoid the nightmare scenario of having to raise interest rates alongside the huge fiscal squeeze," Loynes said. The government, intent on slashing a record spending deficit, will give details of its plans to cut spending and raise taxes next week. While inflation has remained stubbornly high as the economy makes a slow recovery from a deep recession, both the Bank of England and the government expect the inflation rate to fall back to target next year.

The largest contributor to inflation was housing and household services, where prices increased this year after falling last year. The biggest effect within the sector was in electricity bills, which were unchanged between April and May and fell a year earlier, the agency said.

Food prices fell slightly since April, it added.

High consumer prices, however, are squeezing household budgets. The ONS said in a separate report that regular earnings – excluding bonuses and arrears – rose just 1.9 percent in the first quarter of the year.