Inflation fears rekindled

Manufacturers were hit by the high oil price and weak sterling

UK raw material prices jumped in May, with manufacturers hit by the rising cost of oil and the weak pound, raising renewed concern over future inflation.

Input prices rose 3.6% from April to an annual rate of 12.9% - the largest monthly rise since 1986.

Producer output prices - the cost of goods leaving the factory - rose 0.1% from April, giving an annual rate of 2.3%.

Sharply rising factory input prices may fuel consumer price inflation, prompting the Bank of England to raise interest rates again.

Oil surges

Crude oil prices have been responsible for the upward pressure on input prices since the start of last year.

Oil prices rose 25.8% on the month, the largest increase since September 1990.

Halifax economist Adam Chester said: "A combination of factors has boosted input prices. First, oil prices rose last month and was exacerbated by the weakness of sterling. Oil prices are priced in dollar terms. It will depend on how sterling fares in the coming months."

Excluding the rise in the cost of oil prices, input prices rose 0.7%.

Interest rate pressure

The rise in prices may increase pressure on the Bank of England to raise interest rates at its next meeting.

It has left interest rates on hold for the past four months.

The high value of the pound had deterred the bank from raising rates, amidst complaints from exporters that the strong pound was hurting their profits.

Since then, the pound has weakened, forcing higher the cost of imported raw materials.

Other imported materials, such as steel products, platinum and aluminium, saw their prices rise as well.