LONDON (Reuters) — Lower utility bills pushed Britain's inflation rate down in June but price pressures continued to bubble below the surface, boosting expectations that interest rates will rise again before the end of the year.The Office for National Statistics said on Tuesday annual consumer price inflation slowed to 2.4 percent last month from 2.5 percent in May.

Many in the market, however, had predicted a larger fall and the report's detail — which showed a surprise pick-up in retail price inflation and the fastest rise in core inflation for a decade <\m> suggested the longer term outlook looked less benign.

"Inflation is only making slow progress coming down and the odds are that with oil prices on the rise, the headline is going to remain stuck above the key two percent target for an unacceptably long period," said David Brown, chief European economist at Bear Stearns.

The Bank of England has vowed to look beyond the short-term effect of falling utility bills has already raised interest rates five times since August in order to steer inflation back to target.

Sterling vaulted to a 26-year high against the dollar and British interest rate futures fell after the data as investors grew convinced that at least one more interest rate hike was in the offing.

"We expect to see interest rates rising to six percent before year-end and it may not end there," said Brown.

Inflation has fallen steadily since hitting a decade-high 3.1 percent in March, a level that forced the governor of the Bank of England to write an unprecedented letter of explanation to the government.

However, it's downward trajectory is being slowed by a recovery in the price of oil. Supply concerns and an influx of speculative money helped push oil to an 11-month high above $78 a barrel this week, closing in on record peaks scaled last August.

Food prices are also expected to rise in the coming months with crops in many areas of the country ruined by the wettest June on record. Freak weather has also sent food prices up right across Europe for staples like pasta and bread.

Policymakers may be worried by a surprise surge in furniture prices which flies in the face of anecdotal reports of retailers having to slash prices to draw in consumers.

The Office for National Statistics said furniture prices rose at the fastest rate in June since records began more than a decade ago.