Higher oil prices pushed British factory gate prices up at their fastest annual pace in over seven years in May, adding to fears that broader inflation is building and will bring more interest rate hikes.
The factory figures supported economists' expectations that oil prices will also fuel consumer inflation. May consumer price data are due for release on Tuesday.
The Office for National Statistics said non-seasonally adjusted output prices rose 0.3 percent on the month to stand 2.4 percent higher than a year earlier, the highest annual rate since November 1996.
Although the output inflation figures were slightly below analysts' predictions of an annual rise of 2.5 percent, the sharp increase will likely reinforce the Bank of England's concerns about growing inflation, which it said justified a 25 basis point hike in interest rates last week.
"The figures are mainly in line with expectations but they show that the manufacturing sector is facing a higher cost base and (that) they are recouping higher costs by pushing prices up," said Philip Shaw, chief economist at Investec.
British government bonds and short sterling interest rate futures fell briefly after the release of the data on the perception that the numbers made further interest rate rises likely to come sooner rather than later.
The ONS data tallied with recent survey evidence showing pricing power returning to manufacturers. The CIPS/Reuters manufacturing sector survey showed output prices rose at the fastest pace in four and a half years.
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