Lower inflation could herald interest rate cut

The chances of interest rates falling for the first time in more than three years have received a boost with the news that consumer price inflation (CPI) remained at 1.8 per cent last month.

The Office of National Statistics (ONS) has said that though the price of oil and food rose over the month, lower than expected growth in the price of clothing and cheaper energy bills helped inflation remain constant.

Earlier this month the Bank of England kept rates at 5.75 per cent, prompting the Centre for Economics and Business Research (CEBR) to suggest that rates could now fall in September.

"The September consumer price inflation data will make largely pleasant reading for the Bank of England, and will likely boost expectations that it will trim interest rates before the end of the year, and possibly as early as November," added Howard Archer of Global Insight.

However, Mr Archer noted that his firm was still of the opinion that rates would fall in early 2008.

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