LONDON Prices in British store chains rose in July at the slowest annual rate this year, industry data showed on Tuesday.

The British Retail Consortium said annual shop price inflation cooled to 7.4% in July, down from 8.4% in June.

Prices fell in month-on-month terms for the first time in two years, the BRC said.

The BRC's inflation measure captures prices of goods sold in-store and is seen as a leading indicator for the broader official consumer price index, which measures services and energy costs.

Clothing and footwear was the biggest downward driver for shop prices in July, the BRC said, while food price inflation fell to its lowest level this year.

"These figures give cause for optimism, but further supply chain issues may add to input costs for retailers in the months ahead," said BRC Chief Executive Helen Dickinson.

"Russia's withdrawal from the Black Sea Grain Initiative and subsequent targeting of Ukrainian grain facilities, as well as rice export restrictions from India are dark clouds on the horizon."

The latest official data showed Britain's high rate of inflation fell by more than expected in June and was its slowest in over a year at 7.9%%.

Despite cooling inflation, economists think the Bank of England will raise interest rates on Thursday to 5.25% from 5%.

(Reporting by Andy Bruce)