Surprise fall in UK inflation muddies Bank of England rates picture

* UK inflation falls for 3rd month running

* Sterling falls to 2018 low against dollar

* Data add to doubts about next BoE (Shenzhen: 000725.SZ - news) rate hike timing

(Adds detail, new quotes)

By Andy Bruce and William Schomberg

LONDON, May 23 (Reuters) - British inflation fell

unexpectedly in April, according to data that prompted fresh

questions about when the Bank of England would next raise

interest rates and pushed sterling to its lowest level against

the dollar this year.

Consumer prices rose by an annual 2.4 percent, the Office

for National Statistics said on Wednesday, marking a 13-month

low as the timing of the Easter holidays meant air fares pushed

down on inflation last month.

Although the BoE had expected inflation to ease in April,

most economists in a Reuters poll thought it would hold steady

at 2.5 percent and some had forecast a rise. It was the second

surprise fall in a row after a drop in March's figures.

"With (Other OTC: WWTH - news) consumers remaining cautious and borrowing appearing

to have fallen substantially, a rate hike over the next few

months is certainly not a done deal," ING economist James Smith

said.

Investors priced in a one-in-three chance of the BoE raising

borrowing costs in August -- the next time it updates its

economic forecasts -- down from 50/50 earlier this week.

Two weeks ago the BoE refrained from a hike that had at one

point been widely expected as it waited to see if the economy's

weak start to the year simply reflected heavy snowfall.

A Reuters poll of economists, conducted before Wednesday's

data, showed most still expected an August hike.

High inflation, caused by the pound's drop after the 2016

Brexit vote, squeezed British consumers last year. Although it

has receded from its November peak of 3.1 percent, it is running

above the BoE's target of 2.0 percent.

On Tuesday, Bank of England Governor Mark Carney cited a new

sugar tax on soft drinks, as well as higher utility bills and

petrol prices, as reasons why inflation in Britain "probably

tips up a bit" in the coming months before resuming a decline.

The ONS said soft drink prices rose sharply over the last

couple of months but the overall impact on inflation was small.

Data last week showed inflation in the euro zone also slowed

in April.

Wednesday's figures pointed to some signs of inflation

pressure still in the pipeline in Britain.

Prices of goods leaving factories increased at a faster rate

than expected last month and the cost of raw materials -- many

of them imported such as oil -- was 5.3 percent higher than in

April 2017, up sharply from an increase of 4.4 percent in March

and suggesting a long run of weakening price growth has ended.

(Editing by Toby Chopra)