UK factory gate inflation highest in 5 months

British factory gate prices rose at their sharpest rate in five months in September in a sign that inflationary pressures are picking up as firms try to pass on higher energy costs.
The Office for National Statistics said on Monday that producer output prices rose an unadjusted 0.7 percent last month, taking the annual rate of increase to 3.3 percent from 3.0 percent in August, much higher than expected.
Some analysts said the figures might deter the Bank of England from cutting interest rates again as soon as next month, especially as even the core measure which excludes petroleum gained unexpectedly to an annual rate of 2.1 percent.
"Our best guess is that the authorities may wait a little longer and want more evidence that the spike in inflation is temporary," said Simon Rubinsohn, chief economist at Gerrard.
The BoE held interest rates at 4.5 percent last week for the second month and many analysts are still predicting it will cut borrowing costs again next month to boost economic growth which has slowed to its weakest rate in 12 years.
Certainly, policymakers may take heart from news that raw material costs fell unexpectedly by 0.3 percent in September as oil prices came off their record highs. Analysts had predicted a rise of 0.6 percent.
That still left producer input prices up 10.3 percent on the year as the cost of crude oil has risen by more than 40 percent over the last year. "This set of data provides mixed messages. The imminent upward pressure on retail prices looks to have intensified but there is some evidence that those cost-related rises will not be sustained," said John Butler, an economist at HSBC.
Consumer price inflation is already running above the BoE's 2.0 percent target and economists predict it could rise further in the coming months on the back of high energy costs.
The ONS said petroleum products were also the main culprit behind the latest rise in output prices. Their cost soared 17.4 percent - the sharpest rate in over five years.
Other manufactured product prices also pushed up factory gate inflation, mainly reflecting a large jump in the cost of scrap steel, probably pushed up by soaring demand from countries like China.