Slowdown in inflation fuels rates optimism

DIANE COYLE

Economics Correspondent

A sharp slowdown in inflation at the factory gate last month has set the scene for a further reduction in interest rates, analysts said yesterday.

But a survey to be published today suggests that the recovery in retail sales continued in January, adding to the evidence that weakness in manufacturing is being offset by stronger consumer spending.

Economists expect the Bank of England to warn about signs of buoyancy in the economy, such as broad money growth and the retail recovery, in its quarterly Inflation Report tomorrow. However, a quarter-point cut in base rates is expected when the Chancellor and Governor of the Bank of England meet early next month.

Andrew Cates, at UBS, said: "The sluggish state of the manufacturing economy and weaker inflation figures are powerful weapons to a Chancellor who needs to lower base rates to aid his party's political fortunes."

Prices paid by manufacturers for their inputs fell 0.3 per cent in January. Their year-on-year inflation rate dropped from 5.9 per cent in December to 4 per cent, lowest since mid-1994.

The unexpectedly big decline reflected lower prices for industrial commodities, although the prices of agricultural commodities and oil rose.

The pound's recent gains also contributed to the slowdown in costs.

Prices charged at the factory gate rose 0.4 per cent last month. Their year-on-year rate of advance fell to 3.8 per cent from 4.4 per cent in December. This was the lowest since last March, although exaggerated by comparison with an unusually big price rise in January 1995.

"Core" output prices - excluding food, beverages, tobacco and petroleum - were flat, even though January is a month which normally brings increases in manufacturers' list prices.

Sean Shepley, UK economist at CSFB investment bank, said: ''Manufacturers are facing excess stocks and weaker orders. There is pressure for them not to raise prices."

The inflation improvement was spread across a wide range of industries. The highest price increases were in pulp and paper and machinery.

Adam Cole, an economist at brokers James Capel, said: "These figures are clearly pointing to a further decline in retail price inflation."

He predicted that the Bank of England's inflation forecast published tomorrow would be lower than last time.

Other economists were not quite as optimistic. Marian Bell at the Royal Bank of Scotland said: 'Manufacturing accounts for only a quarter of the economy. The pick-up in earnings growth could affect retail prices."

Further evidence of retail buoyancy is provided by the British Retail Consortium. According to its survey of high street spending, released today, the value of sales rose 4.1 per cent in the year to January. This was a little lower than December's increase.

Last month's increase occurred despite the impact of two National Lottery double rollovers and unusually bad weather. Andrew Higginson, chairman of the BRC's economic affairs committee, said: "Retailers were relieved to see the gains achieved before Christmas continue through into January, in contrast to last year."

The strongest sectors were food and drink, electrical and household goods.

Overseas visitors helped ensure high sales levels in London stores.

News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Sport
David Moyes and Louis van Gaal
football
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
News
i100
PROMOTED VIDEO
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
Arts and Entertainment
Worldwide ticket sales for The Lion King musical surpassed $6.2bn ($3.8bn) this summer
tvMusical is biggest grossing show or film in history
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
food + drink
News
Rob Merrick's Lobby Journalists were playing Ed Balls' Labour Party MPs. The match is an annual event which takes place ahead of the opening of the party conference
newsRob Merrick insistes 'Ed will be hurting much more than me'
News
A cabin crew member photographed the devastation after one flight
news
Life and Style
Carol O'Brien, whose son Rob suffered many years of depression
healthOne mother's story of how London charity Maytree helped her son with his depression
Life and Style
The Google Doodle celebrating the start of the first day of autumn, 2014.
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits