Inflation falls to lowest-ever level

Inflation figures delivered another shock today after the underlying rate fell by more than expected to 1.5% - the lowest level since records began in 1975.

June's 0.3% fall comes on the back of a surprise 0.5% decline reported by the Office for National Statistics last month.

Economists had been expecting the latest underlying figure - which strips out mortgage interest payments - to dip by a marginal 0.1%.

Today's fall further reduces the pressure on the Bank of England to raise interest rates when it meets next month.

But the Bank's Governor Sir Edward George is now on the brink of being required to write a letter to Chancellor Gordon Brown explaining why the rate is so far from its 2.5% target.

The latest inflation figures were driven lower by reductions in petrol prices compared with a year earlier.

Another large downward effect came from changes in food prices, particularly seasonal food.

The ONS said the annual rate of decline in clothing and footwear reached its lowest level since that series began to be monitored in June 1947.

The sector had seen widespread discounting during June, particularly in women's and children's clothing and footwear departments, it said.

Headline inflation - which includes mortgage interest payments - also fell by 0.1% to 1.0%.

The biggest upward impact on the year-on-year rate came from the housing sector, the ONS added.

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