UK inflation falls to lowest in over four years in March, house prices up strongly

LONDON, April 15 (Reuters) - British inflation fell to its lowest in over four years in March, dipping further below the Bank of England's target and easing the pressure on Britons' living standards.

Consumer prices rose 1.6 percent on the year in March, as expected in a Reuters poll, its lowest since October 2009. That was down from 1.7 percent in February.

The gap (NYSE: GPS - news) between inflation and average wage growth is now at its narrowest since April 2010, the Office for National Statistics said. The last time British wages consistently grew faster than inflation was in mid 2008, it said.

Before December last year, annual inflation exceeded the central bank's target every month since December 2009, eroding the spending power of households and making falling living standards a key battleground for the 2015 election.

But figures on Wednesday are expected to show average weekly earnings, the most widely watched measure of pay, rising faster than inflation.

Subdued price pressures have supported the view that the central bank can keep monetary policy loose for a while without the risk of triggering inflation even as the economy recovers. A first rate rise in only expected in the second quarter of 2015.

The ONS said the biggest downward contribution to the annual consumer price inflation rate in March was motor fuels, followed by clothing and furniture.

Euro zone inflation last month also fell to its lowest level in more than four years at 0.5 percent, contributing to the European Central Bank's decision to discuss quantitative easing more seriously.

An underlying measure of inflation, which strips out increases in energy, food, alcohol and tobacco, fell to 1.6 percent, returning to the four year low hit in January.

Data also released by the ONS on Tuesday showed that factory gate inflation fell to 0.5 percent - its lowest since October 2009, though slightly higher than economists' predictions of a 0.3 percent increase.

House prices across Britain rose by 9.1 percent in the 12 months to February, the biggest rise since June 2010.

That was up sharply from a 6.8 percent rise in January as London's rapid increase in house prices was increasingly mirrored outside the capital.

Policymakers have downplayed the idea that the British housing market is overheating but say they are "vigilant" to those risks.

Concerns about the rapid rise of the housing market prompted the Bank of England to announce in November that it would scrap the part of its Funding-for-Lending Scheme that supports mortgage lending.

But finance minister George Osborne said in his annual budget in March that the government would extend the equity loan portion of the government's Help to Buy mortgage guarantee programme for four years longer than planned to 2020. (Reporting by Ana Nicolaci da Costa (NasdaqGS: ATX - news) and David Milliken)