UK inflation surprises with slowdown, easing pressure on Bank of England

British inflation unexpectedly slowed last month for the first time since October, dousing expectations among investors that the Bank of England might soon raise interest rates for the first time in a decade. 

Consumer prices rose by 2.6 percent compared with a year earlier, the Office for National Statistics said on Tuesday, down from a nearly four-year high of 2.9 percent in May. 

Economists had expected the rate to remain unchanged. 

Sterling fell after the data, down by half a cent against the U.S. dollar, and British government bond prices jumped as the figures suggested the BoE was under little pressure to raise rates when it next meets in early August, despite concerns among some of its policymakers about rising prices. 

The fall in inflation was the sharpest between any two months since February 2015, largely reflecting a fall in global oil prices, and there were also signs of slowing price pressure in factories. 

"This is going to kill the chances of a rate rise in the short term. We will learn more about the Bank of England's thinking in a couple of weeks, but we can expect the calls for a rate rise to reduce to a whimper," Lucy O'Carroll, chief economist at fund managers Aberdeen Asset Management, said. 

However, many economists have said they expect inflation to pick up again soon, adding to the strain on households which are seeing salaries rise more slowly than prices. 

Britain's inflation rate has risen sharply since last year's referendum decision to leave the European Union which pushed down the value of the pound, making imports more expensive.