HEADLINE retail price inflation was flat at 1.3% last month and the key underlying measure was up just a touch, keeping some economists' hopes of another cut in interest rates next month alive.

Although underlying annual inflation crept up from its four-and-a-half-year low of 2.1% to 2.2% in June, it remains well below the Bank of England's 2.5% target. This measure excludes mortgage interest payments.

The Bank's Monetary Policy Committee faces a tricky decision next month. The signs are that activity is growing, but inflation remains muted with no signs of any significant pick-up in the near future.

Economists appear to be finding it difficult to call. There are wildly different predictions about rates, not just at the August MPC meeting but also next year.

Yesterday's inflation data, from the Office for National Statistics, contained no great surprises and they had no noticeable impact on the pound or the stock market.

Alcoholic drinks exerted the main upward pressure on the annual inflation rate last month. Drinks prices were depressed in June last year by offers during the World Cup.

The main downward pressure came from a drop in household goods inflation, from 0.8% in May to 0.6%. This appeared to confirm last year's summer sales were bettered this time round.

Seasonal food prices tumbled 4.2% in June and were 1.1% lower than a year earlier. Fresh fruit prices were 6% lower than last June, and the year-on-year rise in the price of potatoes was much lower last month than in May.

Jonathan Loynes, UK economist at banking group HSBC, still believes base rates ''have probably troughed'' at 5%. He expects a rise of 0.5% in the first half of next year.

But securities house Goldman Sachs said: ''Although interest rates are approaching a trough in the UK, it is premature to believe that the trough has already been reached or that a rising trend will be seen over the next year.''

And Stuart Green, at Credit Lyonnais, believed rates could fall a lot further.

''We think they will cut in August, maybe the last cut for the year, but next year could see another 50 basis points (0.5%) shaved off.''

The gap between services and goods price inflation remains extremely wide.

Annual services price inflation was 3.3% in June, the same as in May. For goods, the rate edged up from 0.7% to 0.8%.

The all-items retail price index remained at 165.6 in June and the headline inflation rate at a six-year low.

HSBC predicted underlying inflation would fall below 2% during the next six months, and Goldman Sachs believed a further improvement was in the pipeline.

The annual RPIY rate of inflation, which excludes mortgage interest payments and indirect taxes, was unchanged at 1.5%.

The harmonised index of consumer prices, the official European Union measure of inflation, rose by 1.4% in the UK in the 12 months to June. It had recorded annual inflation of 1.3% in May.

Economists expect labour market data due today to show that annual average earnings growth fell from 4.6% to around 4.2% in May.

Loynes, who expects a further reduction, pointed to the end of the bonus season and the fact that lower headline inflation was bringing annual pay settlements down.

In the economy as a whole, he sees a ''nice combination of accelerating activity and diminishing inflation pressures.''