The Office for National Statistics has reported that consumer price inflation (CPI) fell to 2.5% in May, against 2.8% in April,

The alternative measure of inflation that includes mortgages and is more often used in pay bargaining, fell to 4.3% in May from 4.5% in April.

Bit analysts still expect the Bank of England to raise interest rates later this year to ensure that inflation falls to the government's target of 2% and this was backed up by a warning from the Bank of England governor - Mervyn King - to expect higher interest rates by the end of the year unless consumers and companies slow spending.

Mr King told the Welsh CBI that "more persistent inflationary pressures have picked up" and he warned borrowers, especially those contemplating house purchases, that "it would be unwise to borrow so much that the repayments are affordable only if interest rates remain at their existing levels".

The ONS cited falling prices for gas and electricity and lower food prices, particularly for vegetables and meat as the main reasons for the reduction in inflation,