Oil price rises push up inflation as house market cools

Higher oil prices pushed up inflation in the UK and sent factory prices in the US to a 15-year high, according to official figures released on both sides of the Atlantic yesterday.

Higher oil prices pushed up inflation in the UK and sent factory prices in the US to a 15-year high, according to official figures released on both sides of the Atlantic yesterday.

The annual rate of inflation that the Bank of England targets nudged up to 1.2 per cent last month from September's 1.1 per cent, in line with forecasts.

The increase was driven by a 2.2 per cent monthly rise in oil costs and a 4.4 per cent jump in domestic fuel and water bills.

Elsewhere there was little sign of inflationary pressures, which economists said meant that there was little danger of it breaking through the Bank's 2.0 per cent target. Howard Archer, an economist at Global Insight consultancy, said: "The Bank is well placed to leave monetary policy unchanged for an extended period while it monitors the depth of the housing market slowdown."

On Monday the Royal Institution of Chartered Surveyors said its members reported the most widespread fall in house prices for 12 years last month as sales dropped by 25 per cent.

Mr Archer said there was little need for a cut in interest rates unless there was a sign that the housing slowdown was turning into a slump. "There is still a very significant risk that the underlying inflationary pressures stemming from the lack of an output gap, tight labour market and the recent fall in sterling will eventually feed through," he said.

The headline rate of inflation, which is traditionally used in pay negotiations, jumped to a six-year high of 3.3 per cent last month, the Office for National Statistics said. Analysts will turn their attention to today's labour market figures, expected to show a rise in the growth of average earnings. Figures published last week showed the prices of goods leaving Britain's factories rose to a nine-year high in October, mainly due to rising petrol prices.

Figures from the US Labour Department yesterday showed producer prices shot up 1.7 per cent last month, the biggest gain in 15 years and well above forecasts, as energy costs and food prices surged. Analysts said the report supported the case for interest rate increases from the Federal Reserve, even though a drop in crude oil prices in recent weeks may herald less inflation pressure ahead.

The British Chambers of Commerce also slashed its UK growth forecast for next year to 2.4 from 2.6 per cent - well below the 3.0-3.5 per cent range predicted by Gordon Brown in the Budget. It cut its 2004 GDP forecast from 3.4 to 3.2 per cent.