The prices manufacturers pay for fuel and raw materials fell at their fastest rate for more than two years last month, official figures showed yesterday.
A sharp drop in the cost of crude oil saw the seasonally adjusted input price index fall 1.8 per cent in July, to stand 0.3 per cent lower than a year ago, the Office for National Statistics said.
The annual fall is the largest since June 1999 and the figures confirm the City's belief that the rate of inflation should ease in the months ahead.
Figures today are expected to show the underlying rate of inflation dropped back 0.1 per cent last month, giving the Bank of England more room for a further reduction in interest rates.
Alex Scott, of Barclays Stockbrokers said: ''There is nothing in these numbers that should change the view there is space still for another interest rate cut.''
The cost of crude oil dropped by 11.8 per cent in the month, while other fuels fell by 0.8 per cent, the ONS said. The cost of imported metals fell 2.1 per cent.
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