British manufacturers' costs fell at their sharpest monthly pace in 1-1/2 years in July but were still nearly a third higher than a year ago, and analysts do not expect any let up from rising headline inflation just yet. The Office for National Statistics said on Monday input prices unexpectedly fell 0.6 percent on the month.
Analysts had forecasts a 1.0 percent rise but data revisions meant costs were still a higher than expected 30.1 percent higher on the year. The recent sharp slide in oil prices - currently trading some $30 a barrel below the record high hit last month - has yet to be fully reflected in official data, which use an average of price That indicates input prices could fall markedly in August, as long as the cost of oil does not rocket higher once again.
"While the Monetary Policy Committee will still be on guard for signs that the rises in pipeline prices are feeding into the high street for some months yet, there is at last some light at the end of the tunnel," said Paul Dales, an economist at Capital Economics.
However, analysts still expect headline consumer price inflation to spike to more than double the Bank of England's 2 percent target when July's figures are published on Tuesday and then remain elevated for some time to come. The BoE publishes its own quarterly inflation forecasts on Wednesday which may indicate whether policymakers could cut rates to revive a flagging economy or may raise them to stop inflation running too high for too long.
The ONS said the prices manufacturers charge their customers rose a weaker than expected 10.2 percent on the year, although that was still the highest since the series began in 1986. Core output prices, which exclude food, drink, tobacco and petroleum, rose 0.3 percent on the month to take the annual rate up to 6.6 percent. It was last higher in May 1981.
"The BoE is very far from out of the inflation woods yet," said Howard Archer, an economist at Global Insight. "We still suspect the BoE will be reluctant to cut interest rates until early 2009 despite the fact that the economy now seems more likely than not to contract over the second half of this year." Separately, the ONS released data showing the goods trade gap with the rest of the world widened more than expected in June to 7.684 billion pounds ($14.76 billion) from 7.399 billion pounds in May.