Further signs of rising inflation

Firms are facing a sharp rise in raw material prices

The amount charged by manufacturers for their goods was 10% higher last month than a year ago in a further sign of inflationary pressure in the economy.

June's rise in producer prices marked a further sharp jump from May's 9.3% annual rise, official figures showed, reflecting the spiralling cost of fuel.

There is a danger that price increases could be passed onto customers, which would further boost consumer inflation.

Consumer price inflation is already at a 10-year high of 3.3%.

'Horrible'

Bank of England Governor Mervyn King has warned that inflation could surpass 4% later this year due to the rising cost of fuel and food.

The Bank is having to combat the threat of inflation at the same time as the economy slows markedly.

Output in both manufacturing and the service sector are weak while the British Chamber of Commerce recently warned that the risk of a recession was increasing.

The Bank of England will be fervently hoping that recent clearly softer demand for manufactured products will increasingly deter manufacturers from trying to raise their prices Howard Archer, Global Insight

Figures from the Office for National Statistics showed that producer prices rose by 0.9% on a monthly basis between May and June, slightly lower than market expectations.

But the headline 10% figure is the highest annual increase since 1986.

This was fuelled by the cost of raw materials as input prices, the amount paid by firms for raw materials, were 30% higher than a year ago.

With oil prices hitting a record high of $149 a barrel last month, the amount firms are paying for fuel has soared.

"These are a pretty horrible set of data overall," said Global Insight chief economist Howard Archer.

"Going forward, the Bank of England will be fervently hoping that recent clearly softer demand for manufactured products will increasingly deter manufacturers from trying to raise their prices and limit their ability to do so."