UK manufacturers’ output prices fall

Figures from the Office for National Statistics (ONS) have revealed that manufacturers’ output prices fell by 1% in October from September, which is the largest monthly fall since records began in 1986.

The fall, which is primarily due to the recent fall in oil prices, means the annual rate of output price inflation is down to 6.8% from 8.5% in September.

Oil prices have more than halved from their high of $147 a barrel in mid-July, while metal prices were down by a record 5.1% in October, also driving factory inflation lower.

According to analysts, the figures suggest that inflation is set to fall sharply and could fall well below the Bank of England’s target of 2%. Inflation reached a 16-year high of 5.2% in September.

In a bid to boost the economy, last week the Bank of England cut interest rates from 4.5% to 3% - much higher than economists had predicted.

However, today’s figures from the ONS show that the Bank of England has scope to cut interest rates even further, believes Hetal Mehta, senior economic advisor to the Ernst & Young Item Club.

Howard Archer of Global Insight expects the Bank to lower interest rates by a further 0.5% in December and to bring them down to 1.5% by mid-2009 as it attempts to avoid a prolonged recession.

In its quarterly inflation report this week, it is expected that the Bank of England will warn that Britain is on the brink of a recession.

Discuss this in the Finance Markets forums

Story link: UK manufacturers’ output prices fall