Lower petrol bills helped cut the cost of living to three per cent last month.

But the dip in inflation was tiny - just 0.1 per cent - mainly because of the rising price of alcoholic drink, toys, games, and foreign holidays.

Consumer Prices Index (CPI) annual inflation – the Government’s target measure – was 3.0 per cent in January, down from 3.1 per cent in December.

It was the fourth monthly fall in a row after soaring to 5.2 per cent in September. A steeper drop had been expected, mainly because of the 2.5 per cent cut in Vat in November, a move the Chancellor Alistair Darling hoped would stimulate the economy but which has been dismissed by business as ineffective.

The latest CPI figure is higher than the Government’s two per cent target for the Bank of England’s Monetary Policy Committee, which recently cut interest rates to one per cent.

Falling transport costs due to the lower price of petrol and diesel at the pumps was the main reason for the small drop.

The National Statistics Office said the average price of petrol fell by 2.9p per litre between December 2008 and January this year, to stand at 86.3p, compared with a rise of 1.3p last year. Diesel prices fell by 4.0p per litre this year, to stand at 98.4p.

A fall in car prices, lower costs for vehicle maintenance and repair and a decrease in air fares also contributed to the downward effect.

Housing costs also fell, with rents and energy all cheaper.

But prices of some goods fell less fast than others, contributing to a smaller-than-expected drop in inflation.

There was upward pressure from toys and games, furniture, household equipment, alcoholic drink, clothing and footwear, books, newspapers, stationery and overseas holidays.

UK inflation in December - at 3.1 per cent - was higher than the provisional EU figure of 2.2 per cent.