LONDON, Aug 16 Reuters British inflation slowed as expected in July to its lowest annual rate since February 2022, although there were more signs of pressure in core and services prices that the Bank of England is watching closely, data showed on Wednesday.

The Office for National Statistics ONS said annual consumer price inflation cooled to 6.8 from June39;s 7.9, as the BoE and a Reuters poll of economists had predicted, moving further away from October39;s 41year high of 11.1 but still far above the central bank39;s 2 target.

Sterling rose slightly against the U.S. dollar on the back of the figures, which reinforced bets that the BoE will press on with its campaign of interest rate hikes.

The ONS said falling gas and electricity prices were the biggest driver behind the drop in inflation, while food price inflation also eased.

Despite the drop in the headline figure, Britain retains one of the highest rates of price growth in Western Europe, with only Iceland and Austria suffering higher inflation.

With wage growth and services inflation both stronger than the Bank had expected, it seems clear that the Bank has more work to do, said Ruth Gregory, economist at consultancy Capital Economics.

The BoE is watching core inflation which strips out volatile food and energy prices and consumer services prices closely.

Core inflation remained at 6.9 in July, flat versus the June reading, and higher than expectations in the Reuters poll for a reading of 6.8.

Services…