Bloomberg News

U.K. Producer Prices Rise Least in Nine Months on Fuel-Cost Drop

July 08, 2011

July 8 (Bloomberg) -- U.K. producer prices rose in June at the slowest pace since September as costs for petroleum products declined for a second month.

The cost of goods at factory gates rose 0.1 percent from May, the Office for National Statistics said today in London. That matches the median forecast of 20 economists in a Bloomberg News survey. From a year earlier, output prices rose 5.7 percent, the fastest since October 2008.

Oil prices fell as much as 22 percent since the start of May, undoing part of a surge earlier in the year sparked by unrest in oil-producing nations in Africa. The Bank of England left its key interest rate at a record low to support the economic recovery yesterday, extending its tolerance of inflation that’s more than double its 2 percent target.

“Hopefully the softer commodity prices will continue and that should translate into modest falls in output prices,” said David Page, a fixed-income strategist at Lloyds TSB in London. Still, the economy’s “soft patch is likely to prove to be short lived,” and the central bank may begin to raise interest rates in November, he said.

Within output prices, food costs rose 0.4 percent on the month in June, while petroleum products fell 0.1 percent after a 0.7 percent drop in May. They had surged 1.6 percent in April.

Input prices rose 0.4 percent in June from May and were up 17 percent from a year earlier, the most since September 2008. Core output prices, which exclude food, drink, tobacco and petroleum, increased 0.2 percent on the month and 3.2 percent on the year.

Construction

In a separate report, the statistics office said construction grew 0.4 percent in May after a 12.4 percent decline in April. The data is non seasonally adjusted.

The pound’s drop of about 25 percent on a trade-weighted basis since the start of 2007 has made British exports more competitive. U.K. factory production rose 1.8 percent from the previous month in May, the fastest pace since March 2010.

The pickup in production hasn’t been enough to spark momentum in the economic recovery. Gross domestic product expanded just 0.1 percent in the second quarter after the Japanese earthquake and long weekends to mark the royal wedding in April weighed on growth, the National Institute for Economic and Social Research said yesterday.

McBride Plc, a U.K. maker of household and personal-care products, has forecast that annual profit will meet expectations as growth in central and eastern Europe offsets “difficult trading conditions” in the U.K. The company said it will leave businesses where margin pressure becomes too great following “some volatility,” in raw material costs.

Growth is “still likely to be weak,” Niesr said, supporting the case for the bank to refrain from tightening monetary policy to counter faster inflation. Consumer prices rose an annual 4.5 percent in May.

--Editor: Fergal O’Brien

UKPPIOY <Equity> CN UKPPNEWS <Equity> CN

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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