Underlying British inflation rose sharply in July, quelling talk of an imminient cut in interest rates and averting possible embarrassment at the Bank of England.

Figures released yesterday by the country's National Statistics office showed underlying prices fell 0.2 per cent in July from a month earlier, pushing the annual rate of inflation up from 1.5 percent in June - its lowest level since records began in 1975 - to 2.0 per cent.

Analysts said the bank could still opt to lower rates later this year if it appeared that the economic downturn, flagged by recent data, was accelerating.

But they believe the latest figures mean policy makers will be in no hurry to ease policy just yet.

"This takes us back above May's 1.8 per cent ... and underpins the rates-on-hold view," said Royal Bank of Scotland chief UK economist Mr Geoff Dicks.

But while the figures may have made unpleasant reading for those beleaguered equity investors pinning their hopes on another rate cut, they were probably greeted with a sigh of relief by Bank of England governor Mr Eddie George. With the central bank charged by the government with keeping underlying inflation between 1.5 and 3.5 per cent, June's figures had left Mr George in danger of having to write a humiliating letter of explanation to Chancellor Mr Gordon Brown.

Analysts said that was now unlikely to happen, although Mr Dicks and others were keen to point out that the rise in July was not entirely unexpected, given that it had appeared unlikely that the sharp declines in seasonal food and clothing prices recorded last July would be repeated. - (AFP)