Inflation rate falls below BoE target

Consumer prices declined by 0.6 per cent in July compared to the previous month, taking the annual rate of inflation to 1.9 per cent - below the Bank of England's (BoE) target of two per cent, the latest figures show.

July's inflation report from the Centre for Economic and Business Research (CEBR) revealed that inflation was much lower than market expectations and that it has fallen below the BoE's target rate for the first time in 15 months.

Energy bill retreated over the month, the report stated, although the largest downward contributions came from the food, with the price of bread, cereals, meat, fish, fruit and vegetables all cut in supermarkets as a result of weak consumer demand.

"Our view is that the decline in inflation this month is more an over reaction to weak demand in July, rather than the disappearing of the underlying food and commodities supply shortages," the CEBR report stated.

"Although the economy is slowing down, July's weakness was also caused by holidays and bad weather. And whilst supermarkets cut prices last month, agricultural wholesalers are still planning to restore their profit margins by feeding through price rises over the coming months for the first time this year."

The CEBR says that it expects a further interest rate rise to six per cent before the end of the year, to allay fears of rising inflation in the medium term.

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