Factory gate prices surge by 6.3 per cent

Factory gate prices surged at their fastest annual rate for nearly three years last month, figures revealed today, but economists said the trend is unlikely to be sustained in future months.

Manufacturers increased their output prices by 6.3% year-on-year in September, compared with a 6% rise the previous month, the Office for National Statistics said.

The increase was driven by a surge in the cost of petroleum products and food, but analysts said it was unlikely to be fed through to consumers as oil costs have since come off the boil.

The figures come a day after the Bank of England's Monetary Policy Committee (MPC) voted in favour of injecting £75 billion into the economy through its quantitative easing programme to jump-start the recovery.

The cost of petroleum products increased by 18.1% year on year, while food prices surged 9.4%, the ONS said.

Factory gate prices rose 0.3% month on month in September, after flat-lining in August. Meanwhile, input prices - the costs paid by manufacturers for materials - increased by 1.7% between August and September.

But Samuel Tombs, UK economist at Capital Economics, said: "September's pick-up in both input and output price inflation seems unlikely to be sustained in future months and hence has done little to change the outlook for consumer price inflation."

The Consumer Prices Index rate of inflation hit 4.5% in August and is expected to rise further this year, peaking at around 5%.

Consumers have been struggling under the biggest squeeze on household spending since the 1920s, the impact of which has been felt throughout the economy, particularly in the retail sector.

Bank of England Governor Sir Mervyn King yesterday said the MPC voted in favour of boosting QE as the deteriorating economic outlook now meant there was a risk inflation would undershoot the Government's 2% target in the medium term.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The firmer-than-expected September producer price data will have little impact on Bank of England policy as the MPC are clearly focused on trying to revive the economy."

Price pressures - particularly from oil - have eased in recent months as fears over a global recession resurfaced.

Brent crude in London dropped below the 100 US dollar-a-barrel mark earlier this week before climbing up to 104.80 US dollars.

PA