U.K. August inflation dropped slightly in line with expectations, driven by a fall in the price of motor fuels and non-alcoholic drinks, official data showed, while house prices grew at their fastest annual pace in seven years in July.
Consumer prices rose 1.5 percent year-on-year in August, down from the 1.6 percent increase in July, the Office for National Statistics (ONS) said on Tuesday. The figure was still below the Bank of England's 2 percent inflation target. The fall was in line with the 1.5 percent forecast in a Reuters poll of economists.
The latest figures are likely to back up Mark Carney's stance to delay a U.K. interest rate hike, according to analysts. The Bank of England has indicated that the first hike from their record low level of 0.5 percent could come in early spring of 2015.
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"I would say that it does make Mark Carney's stance about delaying it more credible," Brenda Kelly, chief market strategist at IG, told CNBC by phone.
"I do question whether or not now we will be in a position to handle a rate hike in spring particularly with elections coming up and inflation so far behind target."
The ONS said the largest upward effect came from clothing, which saw prices rise by 2.6 percent between July and August this year as stores begin to stock their Autumn fashion collections.
Alcohol and tobacco prices also saw a 1 percent increase between July and August this year.
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Separate data from the ONS showed British house prices rose by 11.7 percent in the year to July 2014, the biggest increase since July 2007. The move was driven by a 19.1 percent price surge in London which continues to lead the rises across the U.K.
Rate hike 'speed limit'
Britain has seen a series of weak data that had muddied the picture about the timing of an interest rate hike. Unemployment fell to 6.4 percent for the April to June period from 6.5 percent in the previous quarter and GDP came in at 0.8 percent in the second quarter, but wages continued to show weakness.
Businesses have been worried that an interest rate hike could derail the U.K.'s economic recovery by creating uncertainty among consumers.
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Analysts said that while the Bank of England is still likely to raise rates soon, the latest inflation figures will act as a "speed limit" for the pace of the hike.
"The Bank of England will expect inflation to pick up, but the current low inflation will act as a bit of a speed limit for the pace at which they raise rates," Samuel Tombs, senior U.K. economist at Capital Economics, told CNBC in a phone interview.
- By CNBC's Arjun Kharpal