Factory costs rise 13.4%

The case for higher interest rates intensified today after figures showed factory costs rising at their fastest in more than two years.

The price of materials and fuel paid by UK manufacturers rose 13.4% on a year ago in January, according to the Office for National Statistics (ONS).

Factory bosses were successful in passing on some of the rise as the ONS said the price of goods leaving factories rose 4.8%, the highest since May.

Both sets of figures were stronger than City forecasts and highlighted the inflationary pressures that have brought calls for higher interest rates.

The Bank of England, which kept rates at a record low of 0.5% on Thursday, is due to publish its latest quarterly forecasts for inflation and growth on Wednesday. A day earlier, official figures from the ONS are expected to show that the CPI measure of inflation for January jumped to around 4.3%.

UK economist Samuel Tombs said: "January's producer prices figures provide a timely reminder that, despite yesterday's decision to keep rates on hold, the risk of a near-term hike in interest rates remains very much alive."

Higher oil prices, driven by uncertainty in the Middle East following the recent political unrest in Egypt, caused the latest spike in producer prices, which rose 1.7% between December and January.

The price of Brent crude oil breached the 100 US dollars a barrel mark earlier this month and stood at 102 US dollars today as Egypt's president Hosni Mubarak clung to power despite continued street protests.

Mr Tombs said many of the factors currently pushing up inflation, such as the VAT rise to 20%, were temporary and it was right for the Bank of England to maintain its stance of keeping rates on hold.

"Nonetheless, today's figures may add to concerns about the likely persistence of inflationary pressures," he added.