Page last updated at 10:03 GMT, Monday, 8 December 2008

Cheaper oil cuts producer prices

Workers at the MG plant in Longridge
November's drop followed an even bigger reduction in October

The cost of goods leaving UK factories fell 0.7% during November compared to October, which itself saw a 1% fall.

It is vindication for the Bank of England's view that inflation is not currently a threat, which has allowed it to make three successive rate cuts.

Much of the fall in prices has come from the rapid drop in the price of oil, which is more than $100 a barrel below its July peak.

Analysts say the falling factory-gate prices will feed through to shops soon.

"It's coming down fast and there's plenty more where this came from," said Alan Clarke, an economist at BNP Paribas.

"We're going to see this in supermarkets and high streets pretty much imminently."

Slowing inflation

Producer prices are 5.1% above their level this time last year.

While the falling oil price has led to an overall cut in inflation, there are concerns that the falling value of the pound may lead to some cost pressures.

"For example, imported chemicals and imported parts and equipment both show increases during November," said Philip Shaw, an economist at Investec.

"Overall, this probably doesn't derail the disinflationary story but the selected cost increases are interesting."

The Bank of England's interest rate-setters have cut three percentage points off the cost of borrowing over the past three months, bringing the Bank Rate down from 5% to 2%.

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