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Last Updated: Monday, 8 August 2005, 09:38 GMT 10:38 UK
Oil drives up UK production costs
Oil is rising to new high prices
Rising oil prices are causing inflationary worries in the UK
Raw material costs rose at their fastest annual rate in 20 years in July as soaring oil prices continued to put pressure on UK industry.

Producer input prices rose 1.8% between June and July, giving an annual increase of 13.4%, according to the Office for National Statistics (ONS).

The rising cost of oil, which has touched record highs in recent weeks, was the main factor in the price hike.

Prices of goods leaving UK factory gates rose 0.7% in July, the ONS said.

This brought the annual rate of factory gate inflation to 3.0%, up from 2.5% in June and above the 2.4% predicted by experts.

'Worrying jump'

The 3% figure is also higher than the Bank of England's 2.0% target, but the Bank has said it expects rising oil prices to drive up inflation in the short term.

However, Howard Archer, an economist at Global Insight, said it was "a worryingly larger jump than expected in producer prices".

He said it raised concerns manufacturers were finding it increasingly difficult to absorb higher input costs, "and that these are consequently starting to increasingly feed through the supply chain".

With oil prices rising to new highs in early August, there was evidence of an increase in underlying inflationary pressures, Mr Archer said.

He added that this made it unlikely the Bank of England would cut interest rates again in the near future.

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