UK factory gate prices surge to 20-year record

UK policymakers were given a fresh inflation headache after factory gate prices surged at their fastest rate for more than 20 years during May.

Soaring petrol, scrap metal and food costs caused a 1.6 per cent rise in prices month on month - the biggest increase since March 1981, according to the Office for National Statistics (ONS).

Prices rose 8.9 per cent in the year to May, far worse than expected by most experts and the biggest annual increase since March 1982.

The gloomy manufacturing data fuels further concerns over runaway inflation and gives Bank of England rate-setters little scope to aid the economy by lowering borrowing costs.

Jonathan Loynes, Capital Economics' chief European economist, said: "Much of the rise in factory gate inflation is likely to be absorbed in retailers' profit margins.

"But the increases are now so large that at least some portion of them looks likely to work its way into the high street, even if retail sales slump."

Image: Jonathan Loynes, Capital Economics

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