Surprise rise in UK inflation

The UK's inflation rate rose unexpectedly last month, lifted by higher clothing and footwear prices, according to the latest official data.

The Office for National Statistics (ONS) said underlying inflation - which excludes mortgage interest repayments - rose by 0.1% in July, bringing the annual rate up to 2.9%.

The figures wrong-footed City forecasts, with most analysts betting that the rate would drop to 2.7%.

"These numbers come as quite a shock as we had been looking for a fall," said Simon Rubinsohn, economist at Gerrard Limited.

The ONS said July's increase reflected higher clothing and footwear prices following a surprise surge in retail sales the previous month.

Interest rate impact

The annual rate of underlying inflation has now exceeded the mid-point of the government's 1.5-3.5% target for nine consecutive months, making further cuts in interest rates less likely.

The Bank of England last month cut rates by a quarter of a percentage point to a 48-year low of 3.5% in response to weakness in the global economy.

However, unexpectedly strong consumer spending and borrowing figures since then have triggered speculation that the next move in borrowing costs may be upwards.

Analysts said the Bank's rate-setting monetary policy committee (MPC) was likely to put off any further changes until the direction of the economy became clearer.

"(The increase) will encourage the MPC to sit on its hands for a while longer while it waits to see how the economy develops," said Philip Shaw at Investec.

The Harmonised Index of Consumer Prices, a measure of inflation which the government plans to start targeting next year, was also higher, climbing to an annual rate of 1.3%.