Factory gate prices down 1.3% in July

The cost of goods leaving UK factories declined at the sharpest rate since November 2001, according to figures from the Office for National Statistics (ONS).

The ONS said prices in July were down 1.3% compared with this time last year, however, they were up 0.3% compared with June.

Meanwhile, input prices (the price of materials and fuels that manufacturers buy) plummeted to their lowest since September 1986, which led analysts to reiterate that Consumer Price Inflation (CPI) is headed down considerably.

Prices were dragged down by a 41% drop in the price of crude oil which hit a high of $147 a barrel last July and is currently trading at around the $71 mark.

The latest figures from the ONS show that CPI, a key measure of inflation, dipped to an annual rate of 1.8% in June from 2.2% the previous month.

The CPI hit 5.2% in September last year (a 16-year high), driven by high oil and food prices.

The Bank of England believes CPI will fall to a level of 1% or lower over the next six months, as the economic downturn hits demand and sends prices lower.

The Retail Price Index (RPI), which includes mortgage costs, fell an annual 1.6%, its sharpest drop since records commenced in 1948. RPI inflation is also used as a benchmark for UK wage deals.

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