UK inflation set to fall

Food prices may be lower thanks to a drop in inflation

Inflation is expected to show a slight fall for the month of July in figures due to be released.

Good summer weather and the easing of foot-and-mouth restrictions are believed by analysts to have played a part in a slight drop in inflation last month.

It is predicted that the underlying rate will dip by 0.1% to 2.3% when the Office for National Statistics unveils July's figures.

Petrol prices may come down slightly

Philip Shaw, chief economist at Investec bank, said: "We reckon that food prices will be lower and petrol off a bit, although the degree of price cutting on the high street in the summer sales will not be as great."

This is in contrast to May, when inflation rose sharply as retailers passed on the cost of the foot-and-mouth outbreak to shoppers.

And poor weather pushed up the prices of potatoes and other fresh vegetables.

The figure remains below Chancellor Gordon Brown's 2.5% target in June.

Lower inflation

The Bank of England said last week it expected inflation to fall back to around 2% later this year.

Most economic indicators have pointed to an easing of inflationary pressures.

The British Retail Consortium last week said that the value of sales was 6.1% higher last month than in July 2000, on a like-for-like basis.

"Retailers in July continued to bask in sunny weather," said BRC economist Bridget Rosewell.

And data on Monday showed the prices that manufacturers pay for fuel and raw materials fell at their fastest rate for more than two years.

The Bank of England may feel that any move to stimulate the economy would risk sparking excessive price rises.