Britain's inflation rate slowed more than expected in July, dragged lower by furniture prices, official data showed yesterday, but analysts are still predicting further interest rate hikes ahead.

The Office for National Statistics said the consumer price index fell 0.3 per cent on the month in July, taking the annual rate down two-tenths of a percentage point to 1.4 per cent and below consensus forecasts for 1.5 per cent.

This leaves inflation well below the Bank of England's two per cent target although policymakers last week already predicted a slowdown in the near-term when they raised the base interest rate to 4.75 per cent - the fifth hike since November.

"The easing back in inflation does not significantly alter the outlook for interest rates, although the drop was slightly larger than expected," said Howard Archer, economist at Global Insight. Analysts are predicting rates will rise to at least five per cent by the end of the year as the Monetary Policy Committee is more concerned that inflationary pressures are building and will push up the CPI in the months ahead.

The pound fell against the dollar and the euro after the data were released but interest rate futures were broadly unchanged. The main downward effect on inflation came from furniture prices where price discounting in the summer sales was much greater than a year ago - perhaps a sign that the nation's booming housing market is finally slowing.

The inflation rate was also lowered by food where overall prices fell this July compared with little changed a year ago. Offsetting effects were increases in the price of cable television subscriptions and package holidays in Europe, the ONS said.

Separate figures showed Britain's goods trade gap with the rest of the world widened unexpectedly in June to £4.97 billion from £4.82 billion in May. Analysts had predicted a gap of £4.5 billion.

That widening brought the quarterly goods and services gap to a record £10.8 billion from £9.2 billion in the previous quarter.

The ONS said the widening in the goods trade gap in June was driven by a fall in the oil surplus. At £22 million, the oil surplus was the smallest since August 1991, when there was a deficit of £20 million.