Factory costs increasing at fastest rate since 1986

Factories in the UK have been hit by the largest increase in their cost bills since records began almost two decades ago, official figures showed yesterday.

Factories in the UK have been hit by the largest increase in their cost bills since records began almost two decades ago, official figures showed yesterday.

The Office for National Statistics said that manufacturers' input costs rose by 1.8 per cent in March, well above forecasts of a 1.2 per cent rise.

This increase, together with upward revisions to February's data, left the annual growth rate for both months at 11.4 per cent - the highest since at least 1986.

The rise was fuelled by a 15 per cent jump in crude prices between February and March, which fed through to commodity costs across the board. Imported chemicals and metal prices also rose sharply, by 14.5 per cent and 9.2 per cent respectively.

But there was little sign that companies had been able to pass on the burden of the rising cost bills to their customers, indicating that the increases would not lead to inflationary pressures.

Although output price inflation rose to 2.8 from 2.7 per cent, stripping out oil and other volatile factors it fell to 2.3 per cent, its lowest since September last year.

Analysts said the data would send mixed messages to the Bank of England's Monetary Policy Committee before its interest rate meeting next month. Michael Hume, an economist at Lehman Brothers, said: "The further weakening in the annual rate of core output inflation does weaken one argument for higher interest rates.But with input price inflation still rising there is a risk that the reprieve on the output side will turn out to be temporary. The crucial judgement is to what extent profit margins will continue to take the strain."

Hopes of further falls in factory costs increased yesterday as oil prices fell for the sixth straight session.

Analysts are divided over whether the Bank is likely to raise interest rates for the first time in nine months in the next couple of months. The next meeting of the MPC would have been on 5 May, the date of the election, but has been moved to the following Monday to avoid accusations of political interference.