LONDON (Bloomberg) — The UK's inflation rate fell the most since at least 1997 in December as tax cuts and the deepening recession eased price pressures across the economy.

Consumer prices rose 3.1 percent from a year earlier, compared with 4.1 percent the previous month, the Office for National Statistics said yesterday in London. That was still more than the median forecast of 2.6 percent in a Bloomberg News survey of 33 economists. On the month, prices fell 0.4 percent.

Inflation is slowing as Britain faces a recession that may be the worst since the aftermath of World War II. Prime Minister Gordon Brown's government yesterday gave the Bank of England unprecedented powers to buy assets, which could be used as a tool to fight deflation, and unveiled its second rescue package for banks. The pound fell to a record against the yen yesterday.

"In the next couple of months the consumer price index will come down very sharply indeed and it will allow the bank to cut rates," said Trevor Williams, chief economist at Lloyds TSB Group Plc in London. "There will certainly be further easing. As interest rates approach zero, you have to put in place other measures to boost liquidity."