Strong pound cuts manufacturers' bill for raw materials

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The Independent Online

A strong pound and falling oil prices combined to cut industry's raw materials bill last month, official figures showed yesterday.

A strong pound and falling oil prices combined to cut industry's raw materials bill last month, official figures showed yesterday.

Factory gate prices rose just 0.1 per cent in October while the cost of raw materials dropped 0.9 per cent. Despite the fall, manufacturers were still finding profit margins squeezed. In October, input costs were 12.1 per cent up on a year ago while firms put up prices by just 2.6 per cent.

However, October's figures showed manufacturers had been given some relief over the month. The year-on-year data for September showed input costs rising at 13.6 per cent and output prices rising just 2.5 per cent.

Jonathan Loynes, chief UK economist at the consultants Capital Economics, said: "With signs of demand weakening, producers have little choice but to absorb the major part of the costs increases in their margins, casting another question mark over the outlook for industry."

The main factor for both input and output prices was oil. A fall in the price of crude oil was compounded by the rise in the value of the pound against the dollar, which is the trading currency for oil. This fed through to a 5.4 per cent monthly fall in oil as a raw material. At the other end of the production line, the price of petroleum products rose.

Crude oil prices are expected to fall sharply next spring as the impact of this year's increases in supply by the Opec, the oil cartel, begin to take effect. Opec has raised output by 3.7 million barrels a day, or 16 per cent, this year in response to a tripling of the price between the end of 1998 and the spring of this year. On Sunday, Opec leaders ruled out any further increase in supply until at least 17 January, the date of their next meeting. Yesterday, December Brent crude was virtually unchanged at about $32 a barrel.

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