Pressure on Bank of England eases

Pressure on the Bank of England over rising prices eased today as the rate of inflation for goods leaving British factories slowed in June.

Manufacturers increased prices by 0.1% between May and June, down from 0.2% in the previous month and compared with rises of more than 1% in three of the first four months of 2011.

Core factory gate inflation, which excludes food, drinks and petrol, fell year-on-year from 3.4% to 3.2%, though the annual rate of overall producer price inflation rose to 5.7%, a 32-month high, due to the comparable period in 2010 seeing a 0.2% drop in prices.

The Bank has been struggling to keep a lid on soaring inflation - which hit 4.5% in May, more than twice its target of 2%.

Policymakers yesterday held interest rates at their historic low of 0.5% for the 28th month in a row as fears over economic growth held the Bank's nerve.

The rising cost of living, coupled with muted wage growth, has stifled consumer spending power in recent months.

The impact is most readily seen on the high street, where retailers such as JJB, Mothercare and HMV are closing stores and in some cases, such as Jane Norman and TJ Hughes, entering administration.

Food prices rose by 0.4% month-on-month and food manufacturers' prices are now 8.9% higher than this time last year, which economists say is likely to have an impact on the retail prices figure for June next week.

There were also big rises for paper and printing and other manufactured products due to rises in rubber and repair costs, though petroleum products prices fell.

Economists said the figures highlighted the pressure on firms' profitability as input prices, which includes costs of raw materials, power and fuel, increased by 0.4% and are now running at a annual rate of 17%.

Vicky Redwood, senior UK economist at Capital Economics, said the 0.4% monthly rise in input prices was a bit disappointing "but provided that oil prices don't rise any further, input price inflation should now be fairly close to a peak".