Factory-gate inflation knocks troubled pound

BY DIANE COYLE

Economics Correspondent

Factory-gate inflation rose for the sixth month running in April. Official figures for prices paid for materials and charged by industry helped knock the pound back below the level at which the Bank of England issued its base-rate warning last week.

The pound fell 2 pfennigs against the mark to DM2.26, and dropped to $1.56.

Its index against a basket of other currencies closed at 84.1, below the level at which the Bank warned that the Government would miss its inflation target unless base rates rose from their current 6.25 per cent.

The index was at 84.4 when Mervyn King, the Bank's chief economist, said base rates needed to rise "sooner rather than later".

Steven Bell, chief economist at Morgan Grenfell, said: "The base-rate decision will revolve around sterling at the next monetary meeting." Kenneth Clarke, the Chancellor, and Eddie George, Governor of the Bank of England, next meet on 7 June.

Prices charged at the factory gate rose 0.4 per cent last month, taking their 12-month rate of increase to 4.0 per cent. "Core" prices - excluding food, drink, tobacco and petrol - increased 4.1 per cent in the year to April.

There was also a bigger than expected 0.7 per cent jump in prices paid by producers for raw materials. Input-price inflation has stayed in double digits all year.

The Treasury said the figures pointed to slower inflation in the core factory-gate prices, because their advance in the latest three months was smaller than in the previous three. But City analysts said they were disappointing.

Raw-materials prices rose fastest in sectors that have either faced big increases in commodity prices - pulp and paper, chemical, and rubber and plastics.

There were also big increases in industries which import a high proportion of their inputs - such as metals and foods - due to the pound's weakness this year. Oil prices in sterling rose 8.3 per cent in April alone.

There were price rises in all main industry sectors, passed on to prices charged in all industries except electrical and optical equipment. Although there was some comfort in the fact that so little of the pressure on input prices has been passed on so far, most City economists expect factory- gate prices to pick up further in the next few months.

Survey evidence suggests that manufacturers' expectations of being able to pass on higher prices have now receded. But many are operating at high capacity, suggesting they will eventually pass on higher costs rather than accept lower profit margins.

Simon Briscoe of SG Warburg said: "Nobody is confident that the peak in producer price inflation is near." With the pound falling nearly 1 per cent against a basket of other currencies yesterday, reinforcing the concern about factory-gate prices, market attention remains focussed on the prospect of a base-rate rise after the next meeting between the Chancellor and Mr George. The minutes of their April meeting are published on Wednesday.

Neil MacKinnon, chief economist at Citibank, said: "International investors have no enthusiasm for sterling. It is a soft currency."

He predicted that sterling could fall further before the next monetary meeting. Steve Barrow, currency analyst at Chemical Bank, thought that the pound might not fall much more but would equally find it hard to trade much higher.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?