(RTTNews) - Extending its Asian session's downtrend, the pound slumped to fresh multi-month lows against the currencies of U.S., Europe and Switzerland in European deals on Tuesday amid a report that showed U.K.'s annual inflation slowed more than expected in September. The pound also weakened to a 5-day low against the Japanese yen. The Office for National Statistics said U.K.'s annual inflation slowed to 1.1% in September from 1.6% in August. Economists were expecting the annual rate to ease to 1.3%. The September 2009 annual inflation rate was the lowest rate since September 2004. The ONS said the biggest impact on annual CPI came from the household services, principally gas and electricity bills, which were unchanged on the month but rose sharply a year ago. Month-on-month, consumer prices remained flat. Core annual inflation that excludes energy, food, alcohol and tobacco stood at 1.7%, down from 1.8% in August. Retail prices dropped 1.4% in September from the same period of last year compared to a 1.3% fall in August. Consensus forecast was for a 1.5% fall. Excluding mortgage interest payments, retail prices were up 1.3%, slower than the 1.4% growth seen in the prior month. Inflation has been falling in recent months and is now well below the Bank's 2 percent target. If the rate of inflation falls below 1 percent, BoE Governor Mervyn King will have to write a letter of explanation to the government. Bank of England policy makers said in the minutes of the September meeting that 'inflation would probably be higher in the short-term than the committee had thought a month ago, though it was still likely to be extremely volatile.' The Bank of England last week left the key interest rate at a record low of 0.5 percent and said it will spend the remainder of its planned bond purchases. The bank's forecasts show inflation will probably drop below 1 percent later this year and miss its 2 percent goal in three years. Bank of England policy makers also stuck to their plan to spend 175 billion pounds ($276 billion) of newly created money on assets to foster economic growth after five quarters of contraction. The British Chambers of Commerce said today that the U.K. economy may not have exited the recession in the third quarter and that the central bank has room to expand asset purchases to 200 billion pounds next month. The Bank of England's next decision is November 5. A trio of surveys released earlier today showed Britain's unprecedented monetary and fiscal stimulus has helped reverse a slide in house prices, buoyed retail sales and pushed the economy closer to recovery. Retail sales in Great Britain increased in September, according to survey results released today by the British Retail Consortium. The BRC said comparable store sales increased 2.8 percent on year in September, following a 0.1 percent on-year decrease in August. Overall sales, which include new stores, increased 4.9 percent over their levels of September 2008, following a rise of 2.2 percent on year in August. The September increases were the largest since April 2009. Most economists were forecasting overall retail sales to increase 3.0 percent on year. Meanwhile, the Royal Institution of Chartered Surveyors said that an index measuring sentiment in the United Kingdom housing industry jumped to its highest score in September since May 2007, posting a score of 22. That beat forecasts for a score of 16 following the mark of 10 in August. The pound that closed yesterday's trading at 141.92 against the yen slipped to a 5-day low of 141.22 during early European deals on Tuesday. On the downside, 139.75 is seen as the next target level for the U.K. currency. According to data released by Bank of Japan, the benchmark measure of money supply, M2, rose 3% year on year to a daily average of 757.8 trillion yen in September. M3 was up 2.2% in the same period. The Bank of Japan began its two-day monetary policy meeting today and will announce its decision on interest rates at its conclusion tomorrow. Analysts expect the bank to keep rates on hold at the record low 0.10 percent, although investors will be looking for clues as to how soon the bank may raise rates - especially after Australia hiked rates in a surprise move last week. Thus far, the pound-yen pair has dropped 1.4% from yesterday's 6-day high of 143.26. In early European trading on Tuesday, the pound fell to 0.9412 against the euro, its lowest level since March 27, 2009. The next downside target level for the pound is seen at 0.95. At yesterday's close, the euro-pound pair was quoted at 0.9356. German economic sentiment dropped 1.7 points to 56 in October from 57.7 in the prior month, the latest survey from the Centre for European Economic Research or ZEW showed today. The expected reading was 58.8. But, the index stood well above the historical average of 26.7 points. Meanwhile, the economic expectations for the Eurozone eased 2.7 points to 56.9 in October, while the indicator for the current economic situation rose 2.5 points to minus 75.4 points. After hitting a 6- 1/2 -month high of 0.8403 against the euro on June 22, the pound has lost 11% thus far. Against the Swiss franc, the pound weakened to a 7-month low of 1.6125 in early European deals on Tuesday. If the pound-franc pair falls further, it may target the 1.60 level. The pair closed yesterday's North American session at 1.6226. Switzerland's producer and import price index dropped 4.9% year-on-year in September, in line with economists' expectations, the Federal Statistical Office said today. The index was down 5.5% in August. Month-on-month, producer and import price index rose 0.2% in September, faster than the 0.1% growth expected by economists. The U.K. currency has depreciated more than 11% against the franc since it reached a 5-month high of 1.8121 on June 24. During early European deals on Tuesday, the pound tumbled to near a 5-month low of 1.5710 against the US dollar. The next downside target level for the pound is seen at 1.560. The pound-dollar pair closed Monday's trading at 1.5798. The pound-dollar pair that jumped to a 9 1/2 -month high of 1.7045 on August 05 has dropped 8% since then. There are no significant economic reports due to be released from U.S. today. However, investors are treading cautious path ahead of more third quarter results. Traders awaited quarterly results from Intel Corp (INTC.O) and Johnson & Johnson (JNJ.N), both due on Tuesday, with results due later in the week from Citigroup (C.N), Bank of America (BAC.N), Goldman Sachs (GS.N), JPMorgan (JPM.N), Google (GOOG.O), IBM (IBM.N) and General Electric (GE.N).

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