Page last updated at 15:47 GMT, Friday, 9 April 2010 16:47 UK

Pound rises as UK producer prices hint at inflation

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The pound has risen against the dollar after figures showed the cost of goods leaving UK factories in March rose by more than expected.

Producer output prices rose by 0.9% in March, with the annual rate hitting 5% - the highest rate since November 2008.

The increase - driven by higher oil and import prices - led to speculation that UK interest rates may have to rise sooner than expected.

Sterling hit a six-week high of $1.5393, before slipping back slightly.

Cause for concern?

The figures from the Office for National Statistics also showed that input prices - the prices of goods bought by manufacturers - rose by 3.6% in March.

The annual rate of increase in input prices rose to 10.1% - the highest since October 2008.

"The producer price data make pretty unappetising reading and will be the cause of some concern within the Bank of England's Monetary Policy Committee [MPC]," said Howard Archer

"The producer price data may well lift speculation that interest rates could rise well before the end of the year."

The Bank of England has predicted that CPI inflation will fall below its target of 2% later this year. It currently stands at 3%.

Alan Clarke, UK economist at BNP Paribas, said: "I think there are genuine signs here that we will see a slower pace of deceleration in the CPI numbers than we thought previously."

On Thursday, the MPC left UK interest rates at the record low of 0.5% and also decided not to pump any more money into the UK economy through quantitative easing.

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