ANOTHER rise in interest rates next month looked less certain yesterday after the latest consumer prices data showed that Britain's inflation rate slowed more than expected in July.

The sharper-than-expected fall set the scene for today's quarterly inflation report from the Bank of England, as some economists pondered how the central bank would justify its forecast of inflation moving up toward its 2% target in two years' time.

Alan Castle, an economist at Lehman Brothers, said: ''For their (inflation) forecast to be right, you really need to see signs that inflation pressures are actually rising.''

According to the Office for National Statistics, price cutting by retailers - competing to attract shoppers who are facing higher borrowing costs - helped reduce inflation last month.

The ONS said the consumer price index fell 0.3% on the month in July, taking the annual rate down two-tenths of a

percentage point to 1.4% and below consensus forecasts for 1.5%. The fall leaves inflation well below the Bank of England's 2% target.

Policymakers at the Bank last week predicted a slowdown in the near-term when they raised the cost of borrowing for the fifth time since November to 4.75%. Analysts expect interest rates to hit 5% by the end of the year.

Geoffrey Dicks, an economist at Royal Bank of Scotland, said: ''It makes a back-to-back rise in September extremely unlikely.''

The pound fell against the dollar as the market judged

that further rate rises were less likely.

However, despite the sharper-than-expected fall in consumer prices, Dicks forecast higher inflation in the coming months on the back of higher petrol prices, but he noted it would

be from an ''encouragingly low base''.

The ONS cited discounting by furniture and food retailers as the main reason for the fall in the index, which could be

a sign that the country's overheated housing market is cooling down.

Lower mobile phone and fixed-line telephone charges, and lower health service costs added to the downward

pressure.

The figures provide further evidence that the Bank of England's five interest rate rises since November are finally beginning to act as a brake on runaway consumer spending, as retailers feel under pressure to discount prices in order

to woo more cost-conscious shoppers.

In addition, the ONS said Britain's goods trade gap

with the rest of the world widened unexpectedly in June to (pounds) 4.97bn from (pounds) 4.82bn in May. Analysts had forecast a gap of (pounds) 4.5bn.

The trade gap for goods and services was also provisionally estimated to have widened in the month to (pounds) 3.8bn, from a revised deficit of (pounds) 3.6bn in May.

The ONS cited weakening balances in trade and oil, and erratic items such as ships and aircraft, for the deterioration.

US raises rates to 1.5%

The US Federal Reserve raised interest rates yesterday by another quarter of a percentage point to head off potential inflation, saying the economy was poised to pick up after a recent slowdown.

The unanimous decision by the central bank's policy-setting Federal Open Market Committee moves the benchmark federal funds rate - which influences credit costs throughout the economy - to 1.5%. It was the second quarter-point increase this year, following one announced on June 30 after the last committee meeting.

The Fed action came despite anaemic jobs growth in July as well as soaring oil prices that hit records above $45 a barrel yesterday.