Cost data eases chance of rate cut

Source: Supply Chain Digital

Date :09/10/2007 09:47:16

The chances of an early interest rate cut have eased after manufacturing figures showed inflationary pressures persisting in the economy.

Manufacturers' input costs jumped 3.2% in September - the highest increase since January 2005 - after a spike in oil prices, figures from the Office for National Statistics (ONS) show.

The sector also shrugged off five recent rate hikes to increase output by 0.4% in August, according to ONS production figures.

Many economists had expected the Bank of England's policymakers to cut rates - possibly as soon as next month - after the recent summer turmoil in financial markets.

But the Bank's Monetary Policy Committee (MPC), which is charged with keeping Consumer Price Index inflation at 2%, is still cautious about underlying pressures and opted to hold borrowing costs at 5.75% last week.

Richard Snook, economist with the Centre for Economics and Business Research, said: "The data shows that inflation cannot be discounted, despite the weakening economy.

"The data shows that the Bank of England was correct in not making a snap response to the credit crunch by cutting base rates. The input price data suggests that inflation will continue to be a problem in the short term."

The ONS figures revealed that the sharp rise in input costs pushed up factory gate prices by 2.7% last month, the highest rate of increase since March.

Oil prices reached record levels in September due to concerns over lower OPEC production and potential hurricane disruption, but pressure also came from soaring wheat costs prompted by supply fears.

The production figures showed manufacturers bouncing back from a surprise fall in output during July, led by surging output from makers of chemicals and man-made fibres.

October 9 2007

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