STERLING weakened against the pound yesterday as official figures showed British inflation dropped to a 20 month low in May. This rounded off a run of data this week backing the British Chancellor of the Exchequer, Mr Kenneth Clarke's decision to cut base rates. The pound closed at 102.98p sterling yesterday compared to Wednesday's close of 102.66p sterling.

Headline inflation fell to an annual rate of 2.2 per cent month its lowest level since September, 1994 from 2.4 per cent in April thanks to cheaper mortgages and more subdued food price rises compared to a year ago, the Office for National Statistics said.

Underlying inflation, the government's benchmark measure excluding mortgage interest payments, which Mr Clarke is striving to bring down to 2.5 per cent, eased to 2.8 per cent from 2.9 per cent previously.