Price of materials and fuel paid by UK manufacturers rises

Price of materials and fuel paid by UK manufacturers rises

The case for higher interest rates has intensified after figures showed factory costs rising at their fastest in more than two years.

The price of materials and fuel paid by UK manufacturers rose 13.4 per cent on a year ago in January, according to the Office for National Statistics (ONS).

Factory bosses were successful in passing on some of the rise as the ONS said the price of goods leaving factories rose 4.8 per cent, the highest since May.

Both sets of figures were stronger than City forecasts and highlighted the inflationary pressures that have brought calls for higher interest rates.

The Bank of England, which kept rates at a record low of 0.5 per cent on Thursday, is due to publish its latest quarterly forecasts for inflation and growth on Wednesday. A day earlier, official figures from the ONS are expected to show that the CPI measure of inflation for January jumped to around 4.3 per cent.

UK economist Samuel Tombs said January's producer prices figures provided a timely reminder that, despite the decision to keep rates on hold, the risk of a near-term hike in interest rates remained very much alive.

Higher oil prices, driven by uncertainty in the Middle East following the recent political unrest in Egypt, caused the latest spike in producer prices, which rose 1.7 per cent between December and January.

Mr Tombs said many of the factors currently pushing up inflation, such as the VAT rise to 20 per cent, were temporary and it was right for the Bank of England to maintain its stance of keeping rates on hold.

“Nonetheless, today's figures may add to concerns about the likely persistence of inflationary pressures,” he added.

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