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Factory gate inflation plunges

David Prosser
Tuesday 11 November 2008 02:29 GMT
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Factory gate inflation fell by 1 per cent last month, the largest decline ever recorded by the Office for National Statistics, as commodity prices continued to tumble.

The ONS said output price inflation was nor running at an annual rate of 6.8 per cent, down from 8.5 per cent in September, with a sharp fall in the oil price reducing producers’ input prices.

The big fall in factory gate inflation presages a similar reduction in consumer price inflation, which the Bank of England has been struggling to bring back down towards its 2 per cent target level.

That battle has made it difficult for the Bank to cut interest rates to combat the threat of the UK’s slowing economy, though rates have now been cut by a total of 2 percentage points over the past two months, with the Monetary Policy Committee now convinced that inflation will fall back sharply in the short term.

The scale of the fall in factory gate prices surprised analysts. Howard Archer, the chief economist at Global Insight, said: “The producer price data are really eye opening: just as we saw very sharp rises at the beginning of the year, we are now seeing deep declines.”

Hetal Mehta, a senior economic adviser to the Ernst & Young Item Club, added: “The Bank of England has room to cut interest rates even further.”

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