Import prices leapt by 4.3 per cent in June to a level nearly 12 per cent higher than at the end of last year, according to figures from the Central Statistical Office. Despite the rise in import prices the non-EU visible trade deficit fell from pounds 672m in May to pounds 495m in June, although it was barely changed after the exclusion of trade in oil and erratic items such as aircraft and precious stones.
'In underlying terms the trend in the deficit is broadly flat, though we anticipate a marked deterioration in the coming months as domestic demand accelerates and import penetration rises,' Adam Cole, of James Capel, said.
The rise in import prices was widely spread. Recent increases in commodity prices helped to push the cost of basic material imports up by 4.6 per cent, although these account for only 5 per cent of the prices manufacturers charge for their goods.
The price of semi-manufactured imports, which are three times as important as a determinant of manufacturers' costs, rose by a similar amount, triggering a fall of more than 10 per cent in the physical volume of semi-manufactures brought into the country.
Some City economists argued that the figures for import prices and volumes were completely implausible, while the Treasury also professed itself somewhat puzzled.
The Treasury was more impressed by figures from the Society of Motor Manufacturers and Traders showing car production running at levels unrivalled for a decade. Adjusting for normal seasonal effects, 126,000 passenger cars were built in June, the fourth successive month in which the total has exceeded 120,000. Commercial vehicle production also rose strongly. Part of the reason for the buoyancy of car production was higher output from Japanese car plants in Britain.
The Invest in Britain Bureau said yesterday that this sort of foreign direct investment in British industry had helped to create nearly 30,000 new jobs last year, 40 per cent up on 1992.
The figures had little impact on the markets, which concentrated their attention on the twice-yearly statement on foreign exchange to the US Congress by Larry Summers, the Treasury undersecretary. The dollar edged higher after he said the US administration wanted the dollar higher against both the yen and German mark.
The dollar rose on Mr Summers's comments but closed a quarter of a pfennig lower in London at DM1.5615. The Philadelphia Fed said its index of business activity showed a slower pace of improvement this month.
Alan Greenspan, chairman of the US Federal Reserve, told Congress on Wednesday that the Fed might not yet have done enough to dampen inflationary pressure.Reuse content