Good news for homeowners with mortgages as this dramatic reduction in inflation has probably removed any potential further increases in interest rates for 2007.

After last months figures, specialists where 80-90% certain of another 0.25% in interest rates, however the chances of such an increase is now less than 50%.

CPI annual inflation – the Government’s target measure – was 1.9 per cent in July, down from 2.4 per cent in June, the largest single drop in inflation for 5 years.

The largest downward contribution came from food prices, as supermarkets led price cuts across a range of products including bread and cereals, meat, fish, fruit and vegetables. In addition, price increases last July on beef and shop bought milk were not repeated this year.

Another large downward contribution came from furniture and furnishings, with average prices falling over the month by more than 10 per cent, a record for July, following record increases for June last month. Widespread sale prices were available on a range of items in July including kitchen, bedroom and lounge furniture.

Other large contributions came from:

• Transport
• Housing and household services
• Recreation and culture

Related links

[1] Beginners Guide to Predicting the Outlook for the Housing Market