Fears of rising interest rates were eased today as inflation fell back in May from 17-month highs despite petrol price rises to record levels.

Birmingham Chamber of Commerce and Industry (BCI) welcomed the fall in the Customer Price Index (CPI) from 3.7 per cent to 3.4 per cent.

BCI policy adviser Will Rogers said: "The decline was driven by a fall in food prices on the month, as well as slower rises in the price of petrol, alcohol and tobacco than the same month last year."

The Office of National Statistics said average petrol prices rose 0.3p to a record 120.5p in May, but overall inflation fell because motorists were hit by even steeper price hikes a year earlier.

Mr Rogers added: "While there is growing pressure to raise rates to counter the inflationary effect of the weaker pound, today's figure indicates that the long-term outlook for inflation is subdued. 

"However, the rate remains well above the Bank of England's annual target of 2 per cent. We are urging the new coalition government to support the private sector in the emergency budget on June 22."