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Last Updated: Tuesday, 15 August 2006, 09:39 GMT 10:39 UK
Inflation eases slightly in July
Cash till
More rate rises may be needed to control inflation
Inflation fell marginally to 2.4% in July, but the figure remains above the government's 2% inflation target.

The Consumer Price Index (CPI) dipped from 2.5% in June, according to the Office for National Statistics (ONS).

The headline rate of Retail Price Inflation (RPI) remained unchanged at 3.3%, the ONS said.

Fears of rising inflation, sparked by high energy prices, led the Bank of England to lift interest rates by a quarter of a point to 4.75% this month.

Energy bills

With energy costs remaining high and a strong housing market, some experts feel rates may soon rise again.

Policymakers have also hinted that rates may need to increase again.

In its quarterly inflation report, the Bank of England said that inflation could rise to 2.7% unless monetary policy was tightened further.

An interest rate hike before the end of the year remains a very real possibility
Howard Archer, Global Insight

The recent rise in interest rates was the first in more than two years, signalling concerns that higher energy costs are pushing prices up across the board.

Gas and electricity bills have risen significantly this year with oil prices remaining close to record highs of more than $75 a barrel.

Last month's dip in prices was due to a spate of special offers by furniture and clothing retailers, ONS said.

In addition, petrol prices did not rise as fast as last year while cheap flight promotions also kept prices down.

On the other hand, rising utility bills pushed up prices for housing and household services.

Rate debate

Business groups strongly criticised the rate rise, arguing that it was premature and would harm competitiveness.

Gas hob
Energy bills have risen significantly this year

Experts are divided over whether it was a one-off rise, designed to nip inflation in the bud, or a signal that rates will soon rise above 5%.

One economist said the latest data suggested that higher energy costs had yet to really feed through to wider prices, but that this could happen at any time.

"With hikes in utility prices and increasing university tuition fees set to push headline inflation higher over the coming months, the Bank of England is unlikely to relax," said Howard Archer, chief economist at Global Insight.

"An interest rate hike before the end of the year remains a very real possibility."

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