Price inflation at 16-year high

Factories are grappling with rising raw material costs

Price inflation of goods leaving UK factories held at its highest rate in 16 years in February, as producers passed on rising raw material costs.

The Office for National Statistics said that producer prices rose at an annual rate of 5.7% in February, driven by the rising price of crude oil.

Prices paid by factories for raw materials rose 19.3% on the year - the fastest since records began in 1986.

The price of factory-made food products increased by 8.4%.

The main drivers were the meat, bread and dairy sectors.

Dairy products were up 19.8%, bread products 12.5% and meat products 11.3%.

Price concerns

Analysts said the rise in producer prices could deter the Bank of England from further rate cuts.

"At these levels the Monetary Policy Committee will remain concerned about price pressures coming from food and energy, particularly given the surge in input costs this month," said Philip Shaw at Investec.

In February, the Bank's rate-setting Monetary Policy Committee reduced the key UK interest rate from 5.5% to 5.25% amid growing evidence that the economy is slowing.

Forecasters suggest that in 2008 the UK economy will experience its slowest rate of growth for 15 years.

But signs of rising inflation will make it tougher for the central bank to justify further rate cuts, despite the slowing economy.

Data released at the same time showed manufacturing production in January unexpectedly rose for the first time since October, although overall industrial output fell.