By FWi staff

The underlying rate of inflation dropped to 2.7% in the year to December but remains above the Governments target of 2.5% for the seventh month running

Figures released today by the Office for National Statistics show the headline inflation rate – which includes the cost of mortgages – fell to 3.6%.

Both drops were largely expected by analysts and had no immediate market impact.

Forecasts from Midland Agriculture and the NatWest Group suggest there is little need to dampen the economy further by raising interest rates.

But the Bank of England has the power to increase interest rates and may do so if it feels such a move would slow down the economy and get inflation back on track.

The Bank of Englands base rate is currently set at 7.25%. Analysts say a even a rise of even as little 0.25% could push Sterling beyond DM3.00.

At mid-day today, the Pound was up 3 pfennigs to DM2.97. The currency markets are the main influence on cereal prices at the moment and LIFFE wheat futures dropped £0.95 to £80.75/ tonne in response.