Pound falls against dollar as inflation comes in lower than expected

Unchanged growth in prices weakens case for Bank of England to increase interest rates

Sterling fell against the dollar on Tuesday after the CPI rate of inflation remained unchanged in July, reducing pressure on the Bank of England to increase interest rates to curb the rising cost of living.

The pound shed more than a cent to reach $1.2855 on the foreign exchange markets, after the consumer prices index held steady at 2.6% last month, the same level as recorded in June. City economists had expected a slight rise to 2.7% on the back of higher costs for producers following the slump in sterling in the wake of the vote to leave the European Union, which has led to rising inflation this year.

Inflation is when prices rise. Deflation is the opposite - price decreases over time - but inflation is far more common.

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