Britain's inflation rate unexpectedly fell in August further below its 2 per cent government-set target as clothing and footwear retailers raised prices by less than a year ago, official data showed today.
The Office for National Statistics said consumer prices rose by just 0.3 per cent on the month in August, bringing the annual rate of inflation down to 1.3 per cent - the lowest since April. Analysts had expected the rate to remain steady at 1.4 per cent.
The pound fell a quarter of a cent against the dollar and short sterling interest rate futures edged up as dealers bet that the figures at the margin reduced the probability of the Bank of England hiking rates again.
The BoE has already raised borrowing costs five times since last November to 4.75 per cent to cool roaring consumer spending and house prices despite inflation being consistently below target.
The latest CPI report, however, does chime with survey evidence that retailers may be faced with lower demand.
The main reason for the decline in the inflation rate was that clothing and footwear retailers did not raise their prices as much this year following the summer sales.
Clothing and footwear prices were 5.7 per cent lower than a year earlier, the steepest fall since December 2002.
There was also a further downward impact on CPI from recreation, in particular from toys.
But there were partially offsetting effects from personal computers, theatre ticket prices and foreign holidays.
Britain has enjoyed one of the lowest inflation rates in the European Union since the start of 2000. The average inflation rate in the 25 members of the EU was 2.2 per cent in July compared with 1.4 per cent for Britain at the same time.