Shares rise as inflation slows at factory gate

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The Independent Online
SHARE prices rose strongly yesterday as unexpectedly subdued factory-gate inflation figures encouraged hopes of an early cut in British interest rates.

The FT-SE index of 100 leading London shares ended the day 41.5 points higher at 3,233.4, helped in thin trading by the strong rise on Wall Street on Friday. The June short sterling future rose on rate cut hopes, but lost ground later in the day with traders tentative ahead of Thursday's fortnightly Bundesbank council meeting.

Manufacturers' prices were 3.3 per cent higher in February than a year earlier, the lowest factory-gate inflation rate for 16 months, said the Central Statistical Office. This bodes well for high-street inflation.

Excluding food, drink, tobacco and petrol prices - all of which are affected by Budget changes in excise duties - output prices rose by a seasonally adjusted 0.1 per cent last month, having been static in January. This took the underlying rate of output price inflation down from 2.6 per cent to an eight-month low of 2.4 per cent.

Simon Briscoe of Warburg Securities said the figures showed that 'inflationary pressures remain very subdued'. Analysts said that recent surveys of manufacturers by the Confederation of British Industry suggested that factory-gate inflation should stay low. 'The weakness in output prices reflects a fading inflationary boost from sterling's drop, not a squeeze on margins,' said Michael Saunders of Salomon Brothers.

The prices manufacturers paid for fuel and raw materials rose by 0.3 per cent, a rebound from the 0.7 per cent fall in January but a smaller increase than economists expected. Input prices were 3.6 per cent below their level a year ago, compared to a 3.3 per cent fall in the year to January. This is the sharpest fall since the year to January 1991.

Home-produced raw materials for food manufacturing rose in price in February, while electricity prices fell for industrial users. The prices of crude oil and related inputs fell by almost a quarter in the year to last month.

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