British factory gate inflation eased to the slowest pace in nearly three years in July, data showed, indicating that price pressures in Britain are easing and supporting the Bank of England‘s view of a fall in consumer price inflation.

Business surveys have indicated that input price pressures continue to ease...

A separate release showed that construction output dropped 3.9 per cent in the second quarter, less than the 5.2 per cent slump the Office for National Statistics pencilled in its first estimate of gross domestic product, which was the main drag on the economy, as it shrank by 0.7 per cent in the quarter.

The smaller decline in construction output points to an upward revision of 0.1 percentage points.

Together with an upwardly revised industrial production, the drop in GDP looks now 0.2 percentage points smaller than so far estimated, the Office for National Statistics said

Producer output prices rose 1.7 on the year, compared with a downwardly revised two per cent rise in June and below forecasts for a percent 2.1 per cent increase. This was the lowest rate since October 2009.

Input prices rose 1.3 per cent on the month, though they were still 2.4 per cent lower than a year ago, compared with forecasts for an annual decline of 1.5 per cent.

Business surveys have indicated that input price pressures continue to ease, though manufacturers were still hiking their prices.

The central bank forecast that consumer price inflation would fall from the 2.4 per cent hit in June in the short term, to around 2.1 per cent in the last three months of 2012.

In its forecast update published on Wednesday, the Central Bank also slashed its growth predictions for Britain for this year to zero and to only a modest recovery after that.

With the eurozone crisis weighing on exports and business confidence, this modest recovery is heavily dependent on a fall in inflation to give hard-pressed households a bit more space to increase spending after years of falling real incomes.