UK inflation falls short of expectations Service sector prices cool

British inflation accelerated for the first time this year, but remained below economists' and the Bank of England's expectations, strengthening the case for further interest rate cuts.

The consumer price index (CPI) rose 2.2 percent in July, the Office for National Statistics said Wednesday, after rising 2 percent in each of the previous two months. Economists had expected 2.3 per cent, while the Bank of England forecast 2.4 per cent.

Inflation in the services sector, which is closely watched by Bank of England officials, fell to 5.2% from 5.7%, the lowest level in more than two years and below the Bank's forecast of 5.6%. This indicator is a sign of domestic price pressures.

The data adds to a mixed picture of UK economic reports, which investors watch for signs of when the Bank of England may cut interest rates again. Traders are betting on at least one more rate cut this year, but lower price pressures could pave the way for more cuts.

Sterling fell after the data, falling as much as 0.3 percent to 1.282 against the dollar, hitting a session low.