Factory gate price rises at 12-year high

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The Independent Online

A sharp rise in factory gate inflation may prevent the Bank of England cutting interest rates next month, economists warned yesterday, despite a new IMF forecast of lower economic growth and further evidence of a housing market slowdown.

Annual output price inflation, a measure of what manufacturers charge for their products, rose to 3.8 per cent last month, the Office of National Statistics said, the highest level for 12 years. The ONS said manufacturers were raising prices in order to cope with higher material costs, with oil and food prices climbing sharply.

"This is hardly the most pleasant set of data for a central bank which is under pressure to cut interest rates to dilute the risk of a sharp economic slowdown," said Howard Archer, an economist at Global Insight. "Overall, the producer price inflation data are likely to add to the Bank of England's wariness about trimming interest rates in the very near term."

Mr Archer said the Bank was likely to hold off an interest rate cut until the new year, despite a growing consensus that the global credit crisis will affect economic growth.

Yesterday the International Monetary Fund predicted that growth in Europe would slow to 3.2 per cent next year, down from 3.8 per cent in 2007.

In the UK, the IMF predicted growth of 2.3 per cent in2008, down from 3.1 per centthis year.

"Financial turbulence has hit Europe at a time when growth was slowing momentum," said Micheal Deppler, director of the IMF's Europe department.

In addition to economic worries, the MPC has to ensure that the housing market makes a soft landing. In the latest in a series of reports suggesting a slowdown, the Department of Communities and Local Government said the annual rate of house price inflation fell to 10.8 per cent in September, down from 11.3 per cent in August.

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