Manufacturers fail to pass on price rises

Hopes of a revival for Britain's manufacturers were dealt a blow yesterday as official figures showed they failed to push through any price hikes last month despite rising raw material costs.

Hopes of a revival for Britain's manufacturers were dealt a blow yesterday as official figures showed they failed to push through any price hikes last month despite rising raw material costs.

The prices of goods leaving the factory gate were unchanged between June and July, putting manufacturers' profit margins under renewed pressure. Manufacturers are locked into their worst recession since the Winter of Discontent in 1979 and there is little hope of a strong rebound.

On Sunday, a CBI survey showed that small- and medium-sized industrial companies are finding trading conditions tough.

The producer prices data from the Office of National Statistics showed that price cuts for electrical and optical goods, transport equipment and clothes, offset hikes for tobacco and alcohol.

The lack of any price pressure from the factory floor will boost hopes that overall inflation will stay below the Bank of England's target when the figures are published later today.

"There is very little inflationary pressure at the factory gate," said Nick Verdi, UK economist at Barclays Capital. "With weaker world growth set to have an adverse impact on exports, there is unlikely to be so over the Bank's two-year forecast period."

Inflation is expected to have risen to 1.8 per cent in July from June's record low of 1.5 per cent, but still below the target of 2.5 per cent.