UK March output prices see biggest monthly rise since April 2006

UK March output prices see biggest monthly rise since April 2006

	Published : Mon, 16 Apr 2007 09:52 By : Agencies Print this Story

LONDON (Thomson Financial) - UK factory gate prices saw their biggest monthly rise in nearly a year in March, driven by sharp gains in the prices of scrap metal and petroleum products, and as the increase in tobacco and alcohol duty announced in the Budget began to take effect, official figures showed.

The sharp gain in output prices will worry rate-setters at the Bank of England, who have recently expressed concern about manufacturers taking advantage of the recent upturn in the economy to raise their prices in order to offset the sharp increase in energy prices last year. This will only add further to expectations that the central bank will raise interest rates again next month.

The Office for National Statistics revealed that output prices rose a monthly 0.6 pct in March, up on February's 0.4 pct rise, revised up from 0.3 pct previously. This is the biggest monthly increase in output prices since April last year and comes well above analysts' expectations for a 0.3 pct gain.

On year-on-year basis, output prices were 2.7 pct higher after a 2.3 pct increase in February, also revised up from the previous estimate of 2.2 pct. The gain is the biggest since August 2006 and again is above expectations for a 2.2 pct increase.

The statistics office said the rise in March from February was mainly due to a 1.8 pct rise in other manufactured products, in particular a 10.9 pct gain in recovered secondary raw materials prices, mainly scrap metals, as well as a 2.2 pct increase in petroleum product prices.

Tobacco and alcohol prices also rose by 0.4 pct as the measures announced in this year's Budget take effect, with the increase in tobacco duty coming into place from March 21 and those on beer, wine and cider from March 26.

ONS estimates that the Budget measures, if passed on in full, are estimated to add 0.05 pct to the overall output index in March and a further 0.15 pct in April.

The figures also showed that output price inflation excluding food, beverages, tobacco and petroleum continued to increase.

The core measure of output prices rose by 2.9 pct year-on-year in March on a seasonally-adjusted basis after a 2.7 pct rise in February. This is the largest increase since June 2006 and is above analysts' forecasts for a dip in the growth rate to 2.6 pct.

On a monthly basis, core output prices were up by 0.4 pct, unchanged from February and above expectations of 0.2 pct.

Meanwhile, the release also revealed a continued rise in raw materials costs, mainly reflecting an 8.2 pct rise in crude oil prices over the month.

Input prices rose by 1.2 pct in March from February, above analysts' expectations for a 1.0 pct rise and following a 1.5 pct jump in February which was revised up from the previous estimate of a 1.3 pct gain.

On an annual basis, input prices rose by 0.7 pct after a 0.9 pct drop the previous month, again well in above analysts' forecasts for a 0.4 pct rise.

jessica.mortimer@thomson.com

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