By David Milliken and Olesya Dmitracova
LONDON (Reuters) - British consumer price inflation held steady in March at its highest level since last May, while lower oil prices suggested future rises in inflation may be smaller than feared, official data showed on Tuesday.
Annual consumer price inflation held at 2.8 percent, the same as in February and above the Bank of England's 2 percent target, although the finance minister has given the bank leeway to focus more on growth and allow for such inflation overshoots.
The central bank expects inflation to exceed 3 percent later this year, and many economists agree, seeing upward pressure from food prices, water and energy bills and the effect of sterling's sharp fall earlier this year.
But Tuesday's data included signs of easing price pressures in some quarters, with manufacturers' crude oil input costs dropping at the fastest annual rate since July and costs for metals imports also falling.
"I do think you are going to see some increases in inflation over the course of the next three or four months ... (but) we've seen lower oil prices and that could actually limit the peak in inflation," said Deutsche Bank economist George Buckley.
Sterling and bond prices did not move after the data.
The Bank of England will publish new inflation forecasts next month, and some economists think this could help break the deadlock at the central bank over whether to restart its program of asset purchases to help Britain's stagnant economy.
"With the marked retreat in oil and commodity prices currently diluting the upside risks to consumer price inflation, it looks ever more likely that the Bank of England will sooner or later undertake more stimulative action," said Howard Archer of IHS Global Insight.
The central bank's policymakers split 6-3 last month on whether to buy more British government bonds, with some concerned about an inflation forecast that currently sees inflation above target until early 2016.
The Office for National Statistics said that the overall price shifts in Tuesday's consumer price inflation data were modest. Higher prices for books, digital cameras and car insurance were offset by lower inflation for sofas, armchairs, petrol and diesel.
Core consumer price inflation - which strips out energy, food, alcohol and tobacco prices - climbed to 2.4 percent, the highest since December.
Factory gate prices rose by an annual 2.0 percent, in line with economists' forecasts and the smallest increase since July.
(This story corrects date of BoE inflation forecasts in para 7 to 'next month' from 'next week')
(Editing by Hugh Lawson)