Factory prices continue to fall

By MICHAEL CLARKE
Updated:

 

THE price of goods leaving Britain's factories continued to fall in December as the cost of petrol dropped.

Figures from the Office for National Statistics revealed a 0.1% fall between December and January. On top of falling petrol prices, the cost of tobacco, alcohol and clothing also fell.

However factory price falls may be short-lived as a sharp increase in the price of manufacturers' raw materials filters through to consumers.

The price of raw materials rose at the sharpest pace in four and a half years during January, mainly on the back of an increase in the cost of imported goods.

The ONS said producer input prices rose a seasonally adjusted 3.4% last month, the sharpest monthly pace since May 2000 and more than twice the rate predicted by analysts.

That meant input prices were 9.4% higher than a year earlier, the steepest increase since October 2000.

For the year, output prices were up 2.6% on the year, the lowest annual rate of inflation at the factory gate since July.

The data suggested that inflationary pressures are building up and adds to the growing case for a UK rate hike.

The Bank of England decided to keep rates on hold last week but mounting evidence supporting a rate hike may see it increase rates by a further 0.25%.

James Knightly, an economist at ING, said: 'It still seems as though manufacturers are struggling to pass through their higher costs. This may ease some concerns about consumer prices accelerating.'

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