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Shop prices rose slightly in July, with the annual rate of inflation on the high street reaching 0.6 per cent last month, according to new figures.

That compared to the 0.5 per cent year-on-year rise reported in June, said the British Retail Consortium (BRC) in its latest shop price index compiled with consultancy firm Nielsen.

However on a monthly basis shop prices fell by the largest amount since January 2007, with products sold by retailers costing an average of 0.6 less between June and July.

Meanwhile, although prices in London were up 3.1 per cent on the previous year, the capital's highest annual increase in shop price inflation since December 2006 was blamed on weak comparatives, with the BRC stressing that last July had seen a number of retailers discounting goods to combat the effect of the football World Cup, low levels of tourism and a heat wave.

On a national basis the BRC stressed that its measure of high street inflation remained lower than both the Office of National Statistics' consumer price index and the retail price index, which takes into account all consumer spending – including the cost of utility bills.

The retail trade organisation argued that as such its latest research proved again that there was "little inflationary pressure" coming from the retail sector.

According to the survey, which tracks the price of 500 of the most commonly bought goods across 7,500 outlets, non-food prices continued to fall last month. Across the country non-food prices were 0.4 per cent lower in July on an annual basis.

The rate of decline was lower than the 0.9 per cent recorded in June, but the BRC said that it was the result of several retailers bringing forward their usual July sales into the final week of the previous month.

Food inflation also slowed for the third consecutive month in July, falling to 2.8 per cent from the 3.6 per cent recorded in June.

But the BRC warned that the slowdown was likely to be reversed once the full impact on the recent flooding in the UK was felt and stressed that a decision by the Bank of England to raise interest rates further could lead to a rise in food prices.

The benchmark interest rate is currently at a six-year high of 5.75 per cent, following five increases introduced by the bank in less than a year in a bid to stem rising overall inflation.

But the BRC's director general Kevin Hawkins warned that food inflation was "being driven by supply and demand factors impervious to interest rate changes".

"If, as a result of this month's heavy rainfall, food inflation increases over the next few months, a further hike in interest rates will do nothing to curb it," he stressed.