Yesterday's surprise fall in inflation to four per cent has been greeted with caution by business leaders.

Birmingham Chamber of Commerce says that despite the fall, inflation is still running at twice the level targeted by Government. 

Chamber President Christine Braddock said: "The drop to four per cent from last month's 4.4 per cent is not what we anticipated. But it still remains high.

"It does put businesses under pressure, and cuts into margins - in our latest Quarterly Economic Survey, nearly a third of Birmingham manufacturers (29 per cent) cited inflation as their biggest concern. 

"Inflation is still being driven by the rising cost of oil. This has inflated the price of petrol at the pump, transport costs and utility bills.

"We are renewing our call on the Bank of England Monetary Policy Committee to hold its nerve and not increase interest rates.  Although inflation hurts business, low interest rates are benefiting them, especially the worst hit manufacturers."

In the Chamber's recent Quarterly Economic Survey, it was revealed that exporters were benefitting from the low interest rate and the organisation said that this needed to be sustained in the next three months.