British factory gate inflation picked up faster than expected in July as manufacturers began passing on a surge in raw materials prices, which rose at their fastest rate in almost 20 years, official data showed on Monday.
The rise in output price inflation, a gauge of inflationary pressures further down the line, could encourage the Bank of England to stay in wait-and-see mode for now, after it cut interest rates to 4.50 percent last week, economists said.
The Office for National Statistics said input prices rose a seasonally-adjusted 1.8 percent last month, for an annual 13.4 percent. That was the highest since comparable records began in 1986 and reflected a surge in oil prices to near record levels.
Prices at the factory gate also rose more than expected, by an unadjusted 0.7 percent in July, and an annual 3.0 percent.
"Today's data serves as a timely reminder that inflationary risks persist, despite the Monetary Policy Committee's recent cut in interest rates," said Robyn Barnett, economist at UBS.
Indeed, the stronger than expected data drove up the pound to a one-month high of $1.7879, as markets bet that the cost of borrowing would not be lowered again this year.
The ONS said the month-on-month increase in output prices mainly reflected price rises in petroleum and other manufactured products. Core output prices rose 0.4 percent month-on-month, more than expected and the fastest since October 2004.
Some analysts said the recent depreciation in the pound, which lost about 1-1/2 percent on a trade-weighted basis in July as markets geared up for last week's expected rate cut, was partly to blame for the surge in input prices.
The Bank publishes its quarterly Inflation Report on Wednesday, where it is widely expected to revise down its outlook for economic growth which could in turn lower the inflation profile.
But as far as the near-term is concerned, policymakers warned in a statement accompanying last week's rate cut that rising oil prices could push up inflation further.
Britain's consumer price index measure rose to the central bank's 2.0 percent target in June for the first time since it was adopted in December 2003. Data from the government on Monday showed British house price inflation slowed to an annual 5.0 percent in June from 6.0 percent in May.
Figures from the Land Registry, also published on Monday, showed house price inflation in England and Wales slowed to 5.43 percent in the second quarter, its weakest in almost a decade.