Inflation holds steady thanks to fall in fuel prices

● News makes chances of a rise in interest rates this year less likely

The headline rate of inflation held steady at 2.6 per cent last month as a drop in fuel prices offset the rising cost of food, clothing and household goods.

The pause comes as the Consumer Price Index (CPI) slipped back to 2.6 per cent in June after soaring to a near four-year high at 2.9 per cent in May.

Sterling, already under pressure amid political confusion over Brexit, dipped on the news. The pound was trading 0.3 per cent lower against the dollar at $1.29 and 0.1 per cent lower verses the euro at €1.09.

Households have seen their spending power come under sustained pressure from lacklustre wage growth and higher inflation, triggering an increase in credit and a decline in savings.

The ONS said the main downward impact on the cost of living last month came from a drop in fuel prices, which sank by 1.3 per cent between June and July after growing by 0.7 per cent over the period in 2016.

Petrol fell by 1.4p month on month to 113.9p per litre, while diesel slipped by 1.7p to 115.6p per litre.

The decline was countered by food prices notching 0.1 per cent higher on the month in July following a fall of 0.2 per cent over the same period last year.

It was largely driven by meat and other items such as sauces,whichbecamemoreexpensive, the ONS said.

Clothing and utility bills were also putting upward pressure on CPI.

Shilen Shah, a bond stratecommuters gist at Investec Wealth & Investment, said the news made the prospect of a rise in interest rates this year less likely.

He said: “Sterling’s fall post the release of the data is another indicator that the Bank of England is likely to sit on its hands over the next few months, with Brexit related uncertainty also starting to limit economic activity.”