Pressure on Bank eases as factory price rises slow


Pressure eased on the Bank of England yesterday after factory gate prices rose slower than expected, increasing the chances that inflation will fall in the coming months.

Output inflation for manufactured goods slowed to 5.7 per cent last month according to the Office for National Statistics – the lowest annual rate since May and below economists' expectations for a 5.9 per cent increase. The rate had peaked at 6.3 per cent in September.

Factory output prices were unchanged from September while the cost of raw materials used in production fell 0.8 per cent month on month. In the year to October, total input prices rose 14.1 per cent – the lowest annual rate since December 2010.

Manufacturing costs have been driven up by rising prices of oil and other commodities, boosted by unrest in the Middle East and demand for raw materials from China and other emerging markets. Oil prices have dropped by about 15 per cent since the start of May and domestic and imported food price rises have also cooled.

The easing of factory price pressure will be welcome news to the Bank's rate setters. They have kept interest rates at all-time lows and pumped more money into the economy despite consumer price inflation remaining far above the Bank's medium-term target of 2 per cent.

Resisting calls for rate increases to tame rising prices, the Bank's Monetary Policy Committee (MPC) has insisted that inflation is driven by temporary external forces such as energy prices and that an increase in borrowing costs would hit economic growth while doing little to rein in prices.

Howard Archer, the chief UK economist at IHS Global Insight, said: "The benign set of producer price data supports belief that consumer price inflation is headed down sharply over the coming months after likely peaking at 5.2 per cent in September, and that the Bank of England will enact further quantitative easing, most likely early in 2012, to try to boost the struggling economy."

However, the easing of factory prices was not all good news. Though it reflected reduced pressure on margins from commodity prices, the decline, slowing output inflation, was also driven by economic weakness.

Mr Archer said: "The latest survey evidence reinforces the impression that manufacturers' pricing power is weakening markedly as softer demand increases the need to price competitively to try to gain or even retain business."

The Bank held rates at 0.5 per cent on Thursday and kept its target for quantitative easing – or printing money – at £275bn despite inflation surging to 5.2 per cent in September. The Bank has predicted that inflation will fall "sharply" next year as short-term price increases drop out of the figures. It unveils its new growth and inflation forecasts next week.

Construction Contraction

The construction industry contracted less than expected in the third quarter. Output fell 0.2 per cent from a year earlier compared with an earlier official forecast of a 0.6 per cent drop.

The Office for National Statistics said the improved figure would have no material impact on the 0.5 per cent growth in the wider economy for the third quarter.

Construction figures for the previous two quarters were revised upwards. But the industry may face a tougher time as the economy slows and the eurozone crisis shakes confidence.

A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
Dawkins: 'There’s a very interesting reason why a prince could not turn into a frog – it's statistically too improbable'
newsThat's Richard Dawkins on babies with Down Syndrome
Malky Mackay salutes the Cardiff fans after the 3-1 defeat at Liverpool on Sunday
footballFormer Cardiff boss accused of sending homophobic, racist and messages
Rodgers showered praise on Balotelli last week, which led to speculation he could sign the AC Milan front man
Life and Style
life – it's not, says Rachel McKinnon
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
ebooksAn evocation of the conflict through the eyes of those who lived through it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Test Lead (C#, Java, HTML, SQL) Kingston Finance

£40000 - £55000 per annum: Harrington Starr: A Global Financial Service Organi...

Access/Teradata Developer, Banking, Bristol £400pd

£375 - £400 per day: Orgtel: Access / Teradata Developer - Banking - Bristol -...

Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home