Britain sank deeper into deflation this morning as the Retail Prices Index (RPI) measure of inflation shrank to -1.2 per cent in April.

The fall in the RPI measure for April, which is used for workers' wage settlements and includes housing costs such as rent and mortgage payments, was larger than expected - down from -0.4 per cent in March and marks the steepest decline since records began in 1948.

Today's figure has raised fears that increasing numbers of workers could be in line for pay freezes or cuts in the coming months.

The sharp fall in mortgage interest payments after the recent cuts in the interest rate, which currently stands at a record low of 05 per cent, and declining house price dragged down RPI inflation. Excluding mortgage payments, RPI inflation fell from 2.2 per cent to 1.7 per cent, figures from the Office for National Statistics show.

The Bank of England's target measure of inflation, the narrower Consumer Prices Index (CPI), fell more steeply than forecast from 2.9 per cent in March to 2.3 per cent due to declines in household energy bills and the cost of food, but analysts said it is being propped up to some extent by the weakness of sterling.

CPI inflation, which excludes housing costs, is still above the central bank's 2 per cent target but is expected to decline in the coming months. The Bank's own forecasts show that CPI will fall below 1 per cent where it will hover for the next two years, despite the massive £125 billion scheme of quantitative easing.

Colin Ellis, economist at Daiwa Securities, said: "The Bank's projection for CPI inflation is stuck near 1 per cent for most of the forecast horizon. Ordinarily, that would be a signal that further policy stimulus is in train - but the MPC has a few months breathing space to see what happens to the economy first."

Core inflation, which strips out volatile energy and food costs dropped from 1.7 per cent to 1.5 per cent.

David Kern, chief economist at the British Chambers of Commerce (BCC), said: “These figures show that whatever the longer-term inflationary risks may be, inflation is set to fall further in the near future with RPI remaining in deflationary territory.

“The main policy priority must be to alleviate the severe downturn in the economy and to contain the sharp rise in unemployment. Talk of recovery is premature at this stage, so the Bank of England must execute its quantitative programme more forcefully.”

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