STERLING dropped to a fresh five-month low yesterday, after an unexpected fall in annual UK inflation fuelled speculation among financial market players that the next interest-rate rise might be pushed back.

Figures published yesterday by the Office for National Statistics showed annual consumer prices index inflation dipped from 2.5 per cent in March to 2.4% last month. This is its lowest rate since March 2017. The City had forecast annual CPI inflation would have remained stuck at 2.5% in April.

However, although it is down from a peak of 3.1% in November, annual CPI inflation remains well above the 2% target set for the Bank of England by the Treasury. And economists noted signs that the recent bounce in oil prices was fuelling inflationary pressures in the supply chain. The EY ITEM Club think-tank noted annual producer input price inflation had increased from 4.4% in March to 5.3% in April.

The Bank of England’s Monetary Policy Committee earlier this month held base rates at 0.5% amid weak economic data, including ONS figures showing the UK grew by only 0.1% quarter-on-quarter in the opening three months of 2018.

This decision to hold rates coincided with the Bank cutting its forecast of UK growth this year from 1.8% to 1.4%.

In early April, a rate rise at this month’s MPC meeting had been viewed by some economists as a near-certainty. Financial market players have reviewed their rate-rise forecasts significantly in recent weeks because of the weak UK economic figures.

Sterling fell as far as $1.3305yesterday. This was its lowest since December 15, according to data from Reuters.

Ben Brettell, senior economist at stockbroker Hargreaves Lansdown, said: “Inflation falling for the third month in a row further dents any hopes of a late-summer rate-rise from the Bank of England. The Bank [is] currently thought likely to put rates up in August. But it looks to me like 2018 will be another year of the Goldilocks economy - not too hot to stoke inflation and force interest rates higher, and not too cold to induce any panic among policymakers.”

Howard Archer, chief economic adviser to the EY ITEM Club, said: “On the assumption that the economy sees some improvement over the coming months, we expect the Bank of England to lift interest rates from 0.5% to 0.75% in August. However, there is a very real possibility the Bank could hold fire until November.”

Tej Parikh, senior economist at the Institute of Directors, said: “Although the Bank of England has tended to look past oil price shocks previously, a lot now depends on the economy’s ‘bouncebackability' from a weak start to the year. A rebound in growth this quarter combined with a persistent impact from higher oil prices may just force the MPC’s hand and lead to rate rises at its August meeting.”