UK inflation has slowed

Falling gas and electricity bills have slowed the UK's rate of inflation to its lowest level for more than a year, economists have said.

Official figures show that the Consumer Prices Index (CPI) - the Government's measure of inflation - dropped for the third consecutive month thanks to lower energy bills.

Economists are predicting a drop from 2.5 per cent in May to 2.3 per cent last month - a level not seen since May 2006.

But it may be too soon for borrowers to breathe a sigh of relief, with interest rate setters eyeing inflation movements later down the line.

Philip Shaw, Investec chief economist, said the Bank of England may still have to hike rates to 6 per cent before the end of the year to bring inflation down to its 2 per cent target and keep it there.

Food inflation is likely to be one of the greatest upside risks, with farmers and manufacturers expected to pass on the cost of increased wheat prices, which hit their highest level for more than a decade last month thanks to the recent wet weather.

Meanwhile, the five rate rises since last August are forecast to see a more subdued drop in the Retail Prices Index (RPI), which includes mortgage interest payments.

The data from the ONS shows that RPI dropped to 4.2 per cent in June from 4.3 per cent the previous month, although some economists are even forecasting it to have edged back up to 4.4 per cent after May's quarter point rate hike.

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