Higher wheat prices led to a sharper than expected rise in British manufacturers' raw materials costs last month, while annual factory gate inflation slowed less than expected, official data showed on Friday. The figures will disappoint Bank of England policymakers at a time when consumer price inflation is running more than a full percentage point above the bank's 2 percent target.
The Office for National Statistics said producer input prices rose 0.7 percent on the month in September, almost double analysts' expectations, and raising the annual rate to 9.5 percent from 8.7 percent in August. That was the biggest monthly rise in the annual rate since April. Output price inflation eased for a fifth consecutive month to 4.4 percent year-on-year from 4.7 percent in August. The decline was smaller than expected but still took factory gate inflation to its lowest in seven months.
The pound rose after the figures as markets speculated that stubborn inflation pressures lessened the likelihood the Bank of England would adopt any further monetary easing to shore up the economic recovery. "When you are in an environment where inflation has been above target for so long, signs of greater price pressures at any stage of the production process are worth listening to," said Philip Shaw, economist at Investec.
"So this release may have a part to play, albeit a modest one, in assessing whether the Monetary Policy Committee provides more quantitative easing in due course." British consumer price inflation has proved to be surprisingly resilient this year, forcing BoE Governor Mervyn King to write several letters of explanation to the government.
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