Output prices point to rate rise

Rising input costs pushed factory gate prices higher

The price of UK-made goods rose at its fastest pace in eight years last month, prompting fears of a further increase in interest rates.

Goods prices excluding tobacco, food, drink and petrol rose by 0.3% in July compared with the previous month, the Office for National Statistics said.

It was the biggest monthly increase since September 1995, far outstripping forecasts by City analysts.

Experts said the figures made further interest rate rises more likely.

Fuel price jump

"The sharpest month on month rise in core output prices for nearly nine years in July will be of particular concern to the Bank of England, as it suggests that manufacturers are increasingly passing on their higher costs," said Howard Archer, economist at Global Insight.

The data reinforces our belief that a further 25 basis point interest rate hike in September is still very possible Howard Archer, Global Insight

"The data reinforces our belief that a further 25 basis point interest rate hike in September is still very possible," he added.

Mr Archer also warned that with US crude oil prices hovering close to last week's record high of $44.77 a barrel, there was a "considerable risk" of output prices rising further in the short term.

The annual rate of price growth rose from 1.3% in June to 1.6% in July, its highest level since June 1996.

The ONS said that the driving force behind the rise had been an increase in scrap metal prices, which had resumed their upward path after a pause in June.

Metal costs increased 2% in July, pushing the price of metal products up by 0.6% compared with the previous month.

The figures for July were not influenced by the recent jump in oil prices, which took place at the start of August.

In fact, the ONS said that the price of petroleum products saw their biggest fall of the year in July, dropping by 0.9% compared with the previous month.

The dip in fuel prices offset rising metal prices, with the overall cost of manufactured goods climbing by just 0.1%.

The ONS figures were in line with a report last week from the Confederation of British Industry (CBI) which revealed that manufacturers had raised their prices for the first time in eight years between May and July.

Both sets of data point to growing inflationary pressures.

On Thursday last week, the Bank of England raised borrowing costs by a quarter of a percentage point for the fifth time since November last year, taking the base rate to 4.75%.