Britain's underlying inflation rate tumbled to a 27-year low in June, virtually ruling out the chances of higher interest rates from the Bank of England next month.
The fall in the so-called RPIX measure of inflation, which cuts out volatile home loan payments, to 1.5 per cent in the year to June, was attributed by Britain's National Statistics Office today to falls in the cost of motoring, seasonal food and clothing and footwear.
Economists had already begun to question the likelihood of a rate hike next month from a current 38-year low of 4 per cent in light of recent stock market falls.
Tame inflation pressures also raise the prospect of Bank of England governor Sir Edward George having to write a letter of explanation to the government in coming months if inflation falls below 1.5 per cent.
Under its government remit, the bank is obliged to set interest rates to meet a 2.5 per cent symmetrical inflation target.
Financial markets reacted swiftly to the data, with prices for government bonds and interest rate futures soaring, as investors scaled back expectations of higher borrowing costs.