Interest rate cut in doubt as food prices jump by 10%

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The British Retail Consortium said food prices jumped 10% last month, mainly because of an 11.9% rise in the cost of fresh produce. Pork prices in particular were on the rise as farmers passed on the increased cost of grain used to feed pigs.

It was a major headache for the Bank of england as it struggles to bring inflation under control. The monetary policy committee is under pressure to cut interest rates from 5% tomorrow to kick-start the economy but, with inflation well above the 2% target at 4.4% and set to rise further, it is unlikely to do so.

The Bank of England is unlikely to cut rates tomorrow

There were also signs the services sector is holding up.

Howard Archer of Global Insight said: 'We suspect Thursday will prove premature for the Bank of England to cut interest rates. However, we do now expect interest rates to be cut from 5% to 4.75% before the end of 2008, with a move most likely in November.'

The surge in food prices meant overall shop prices were 3.8% higher in August than a year ago. MpC hawks will also focus on signs that the slide in the key services sector is easing, making a 'no change' decision even more likely.

The Chartered Institute of purchasing and supply index of activity - where 50 marks the difference between boom and bust - was at 49.2 last month, up from 47.4 in July.