UK October factory gate inflation soars to 12-year high

Soaring food and petrol prices pushed British factory gate inflation to its highest level in nearly 12 years in October, likely denting expectations that interest rates are about to fall.

The Office for National Statistics said yesterday that output prices rose a non-seasonally adjusted 0.6 per cent on the month in September, taking the annual rate up a full point to 3.8 per cent - its highest level since December 1995.

Analysts had predicted a 3.3 per cent annual increase. The ONS also revised up September's figures and there was further evidence of inflationary pressure further up the pipeline.

Manufacturers' raw material costs rose by 1.8 per cent in October, for an annual increase of 8.5 per cent - the fastest annual pace since July 2006.

The figures are likely to highlight policymakers' concerns that inflation is still a problem and are likely to lower expectations that the Bank of England is about to cut interest rates in response to ongoing troubles in financial markets. The central bank held interest rates at 5.75 per cent last week and experts are now waiting for this week's inflation figures and new BoE forecasts to gauge the likelihood of a cut in borrowing costs in the coming months.

The chief culprits for the strong rise in inflationary pressures are soaring food and energy costs. On the input side, crude oil prices were up 32.1 per cent on the year in October even before the latest run up towards $100 a barrel.

Imported food inflation hit an 11-year high.

On the output side, the increases in fuel duty announced in this year's budget added 0.2 per cent to the overall output price index, while food product prices rose at their fastest rate since August 1993, mainly due to higher dairy and wheat prices.

Stripping out food, drink, tobacco and petroleum, the so-called core measure of output prices rose by just 0.3 per cent on the month, for an annual rise of 2.3 per cent.