Slowdown in factory price rises as demand weakens

Factory gate inflation slowed last month, according to new figures released yesterday by the Office for National Statistics.

Output prices rose by 0.1 per cent between July and August. Meanwhile, input prices for August fell 1.9 per cent ,thanks mainly due to lower fuel prices.

"Manufacturers are becoming more circumspect in raising their prices in the face of weakening demand" said Howard Archer of IHS Global Insight.

"A retreat in input prices from their recent highs is also easing pressure on manufacturers to raise their prices."

The price of crude oil inputs fell by 5.9 per cent, the biggest drop since May. However, there were substantial annual rises in the costs of imported food, parts and equipment, and other materials. And the 6.1 per cent year-on-year increase in factory gate prices was larger than analysts expected.

Consumer price inflation for August is expected to show a further increase on the 4.4 per cent rate seen in July.

But the slowing of factory gate price increases and the fall in input costs is likely to reassure the Bank of England's Monetary Policy Committee (MPC) that inflationary pressures throughout the economy are easing.

"The new figures will make it easier for the MPC to persevere with low interest rates for longer and increase the QE [quantitative easing] programme, if necessary," said David Kern, chief economist at the British Chambers of Commerce.