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Monday, 9 October, 2000, 11:23 GMT
Oil pushes up industry costs
UK power station
Oil prices have escalated by 71.5% in 12 months
The high price of crude oil has pushed up the cost of raw materials to UK industry, according to the latest official figures.

The National Statistics report for September shows that the costs of goods used by companies to make their products rose by 2.8%.

Petrol tanker leaves UK refinery
Fuel crisis hit industry hard but oil price has since fallen back
Compared with a year earlier, raw materials were 14.3% more expensive - the biggest year-on-year increase since 1982.

Oil costs rose 17.1% during September, giving a 71.5% rise over 12 months.

However, the rising costs were not passed on in the price of goods leaving the factory, which were up 0.3% on the month and 2.5% higher than a year earlier.

Expected

The figures were in line with economists' forecasts, following a 0.3% fall in August, and are being seen as a reflection of the recent volatility of oil prices.

John Shepperd at Dresdner Kleinwort Benson said: "I think the pattern is pretty much as you would have thought.

"There's clearly a hit that has come from oil prices."

The cost of crude oil has fallen back sharply since the fuel crisis in September and economists expect the next monthly data to show a reversal of the escalating costs to industry in September.

If the effect of oil price fluctuations proves to be temporary, the Bank of England will have no immediate cause for concern over inflation.

The bank's governor, Sir Eddie George, said in September that there was no sign of "second round" price effects in the UK from the movement in oil prices.

Stable for now

Last week, the bank's Monetary Policy Committee again left interest rates unchanged.

The bank's base rate - which sets the trend for interest rates across the economy - has now been 6% for eight months in a row.

In September, underlying inflation fell to 1.9% - well below the government's 2.5% target rate.

However, in the longer term, persistent increases in the costs of raw materials caused by higher oil prices and a fall in the value of the pound will cause concern.

The Bank of England has already said it expects inflation to rise gradually above its target rate over the next two years.

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See also:

06 Oct 00 | Business
Manufacturing output up again
02 Oct 00 | Business
Factory output hit by fuel crisis
04 Oct 00 | Business
Fuel crisis hits retailers, services
05 Oct 00 | Business
UK interest rates unchanged
14 Sep 00 | Business
Fuel crisis: The cost to business
11 Sep 00 | Business
Company profits squeezed
09 Aug 00 | Business
UK inflation 'set to rise'
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