British consumer price inflation slowed in July but remained above 3 per cent as expected, forcing a third open letter from the Bank of England this year to explain why inflation is still above target.
The Office for National Statistics said that the annual CPI rate slowed to 3.1 per cent from June's 3.2 per cent. That was the lowest since February but the eighth consecutive month that it has exceeded the BoE's 2 per cent target.
Under the BoE's remit, governor Mervyn King has to write an open letter to the government when inflation is more than 1 percentage point above or below target.
He then has to write a new letter if inflation is still more than percentage point away from target three months later. Mr King has previously written letters in February and May.
In his letter to finance minister George Osborne, Mr King will likely blame one-off factors for the overshoot and repeat his belief that inflation will fall below its 2 per cent target within two years.
As such, the CPI reading is unlikely to change market views that interest rates will remain at their record low of 0.5 per cent well into 2011.
The ONS said that the biggest downward effect on CPI inflation in July came from transport costs, particularly the prices of second-hand cars and fuel, reducing the annual rate by 0.14 percentage points.
There was also the sharpest clothing discounting for this time of year since 2002.
Reuters