Market shock as inflation undercuts target rate

Inflation in July fell below the Bank of England's target rate of two per cent, according to national statistics released today.

The Consumer Price Index (CPI) - the government's favoured measure of inflation - showed that price rises in the year to July stood at just 1.9 per cent, down half a percent on June's figures and their lowest level in over a year.

Market experts were shocked by the numbers.

"This is a massive surprise," said Howard Archer, chief UK and European economist at the Global Insight consultancy.

"Consumer price inflation fell back far more than anyone was expecting in July, including - we strongly suspect - the Bank of England."

The downward influence on inflation was mostly attributed to supermarket price cuts. Summer sales of furniture and electrical goods were also a factor, many of which started early this year in order to offset the impact bad weather was expected to have on high street spending.

With the cost of borrowing having risen five times since last August, most market analysts now believe interest rates have peaked at 5.75 per cent.

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