Consumer price inflation seen at 4.1 pct in July

By Nigel Davies

LONDON (Reuters) - Inflation probably rose to over 4 percent in July, against the Bank of England's 2 percent target, but the Bank is unlikely to react by raising interest rates soon as the economy stalls.

The Bank is facing a quandary as inflation is soaring while the economy looks to be easing fast, meaning rates for now will likely be left on hold.

A Reuters poll of 33 economists showed consumer price inflation rising to 4.1 percent in July, up from 3.8 percent in June, driven by high oil and food prices and the base effects of falling energy prices at the same time last year.

That would be a new record high since comparable records began in January 1997. Forecasts ranged from 3.9 to 4.7 percent.

Earlier on Monday data showed manufacturers' costs unexpectedly fell at their sharpest pace in 1-1/2 years in July, but were still nearly a third higher than a year ago.

The Bank left rates on hold at 5.0 percent when it met last week, but its August Inflation Report to be published on Wednesday will be keenly watched by economists for clues as to the outlook for interest rates.

"Near-term the inflation outlook is pretty bleak as higher utility and food prices come through, meaning the BoE will remain hawkish for some time," said Ross Walker at RBS, who forecast inflation at 4.3 percent.

He said the medium term outlook on which the Bank targets inflation remained the most important and would probably show inflation falling back towards target.