Inflation drop fails to quell interest fears

The consumer price level of inflation decreased between May and June, the Office for National Statistics (ONS) has revealed, but this has failed to assuage fears that interest rates are set to rise again this year.

According to the ONS figures, consumer prices went up by 2.4 per cent in the year to June, down from 2.5 per cent in May.

The largest downward pressures on the rate of inflation came from falling gas and electricity bills and prices of miscellaneous goods such as personal care products also falling.

Despite these trends, market analyst Global Insight said that the Bank of England will focus on continuing upside risks to long-term price stability as well as elevated oil prices.

"We believe that interest rates will rise by a further 25 basis points to six per cent in the fourth quarter, barring clear, sustained evidence over the coming months that the 125 basis points rise in interest rates enacted since August 2006 is increasingly feeding through to dampen economic activity and contain underlying inflationary pressures," the company said.

Global Insight claimed that the overall tone of the inflation report is likely to reinforce widespread expectations that the base interest rate will hit six per cent before the end of the year.

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