Factory gate inflation rises, driven by higher fuel costs

| October 7, 2011

The Office for National Statistics (ONS) has today revealed UK producer output prices rose in September – driven by higher fuel and food costs.

The increase will no doubt raise concern about whether consumer price inflation will slow next year as sharply as the Bank of England is forecasting.

According to the ONS, output prices (factory gate) annual inflation for all manufactured products rose 0.3% last month after holding steady in August.

On an annual basis, the rate is at 6.3% - the highest since October 2008, according to the ONS.

The figure was also higher than the 6.2% expected by analysts.

Meanwhile, input prices were also higher, rising by 1.7% on the month and 17.5% on an annual basis.

The Governor of the Bank of England, Mervyn King, said yesterday he expects inflation to peak at 5% this year but will fall sharply next year as hikes in the price of oil subside.

The latest official data shows consumer price inflation is at 4.5% - more than double the 2% target.

The figures come as the Bank of England opted to keep interest rates at the historic low of 0.5% yesterday.

Interest rates have now been at this low level since March 2009 – when the economy was in the midst of recession.

The Bank has come under pressure lately to lift interest rates to combat stubbornly high inflation but has kept rates low to boost the economy.

Yesterday, the central bank also announced it will restart its quantitative easing (QE) programme.

The Bank said it will pump a further £75 billion via its QE scheme after injecting £200 billion into the economy in November 2009.

QE, also known as printing money, is a process used for buying Government bonds or other financial assets.

The measures come as economic growth grinds to a halt and the euro zone sovereign debt crisis threatens to push the UK back into a recession.

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