Sudden spike in price of crude oil raises costs for manufacturers

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The Independent Online

A sudden spike in crude oil pushed up manufacturers' costs in January, giving the Bank of England a fresh inflation warning a day after it voted to pump an extra £50bn into the struggling UK economy.

Tensions in Iran, which threatened to close the strategically crucial Strait of Hormuz last month in response to US sanctions, have fuelled crude costs. A severe cold snap in Europe added to the pressure as gas shortages also forced many countries to burn oil to generate electricity.

The hike in crude oil prices accounted for almost all the 0.5 per cent rise in manufacturers' input costs during the month, the Office for National Statistics said.

Output costs at the factory gatealso rose by 0.5 per cent, a bigger jump than expected by City analysts.

Chris Williamson, chief economist at the financial information firm Markit, said: "Oil remains a concern, as the higher-than-expected numbers for January in part reflected the increased cost of oil arising from tensions in the Middle East.

"With Brent crude at $119 per barrel, up almost 10 per cent so far this year, the rising cost of oil could confound the Bank of England's expectations of consumer inflation falling as sharply as currently forecast in 2012." Despite the oil-driven blip, factory gate prices rose at an annual pace of 4.1 per cent in January, down from 4.8 per cent in December, and the lowest year-on-year rate since November 2010.