U.K. factory-output prices unexpectedly fell in May as petroleum products dropped the most since the depths of the financial crisis in 2009.
The price of goods at factory gates slipped 0.2 percent from April, the first decline since December, the Office for National Statistics said today in London. The median forecast of 18 economists in a Bloomberg News survey was for a 0.1 percent gain. Raw-material costs fell 2.5 percent, the most since December 2008.
The Bank of England left its stimulus plan on hold yesterday after some policy makers pointed to risks from above target consumer-price inflation. Still, food and crude-oil prices are falling, while a U.K. factory survey last week showed inflation pressures eased in May, which may give the Monetary Policy Committee more room to restart so-called quantitative easing to aid the economy if needed.
The producer-price report “adds to survey evidence suggesting that the recent weakness of demand has forced manufacturers to cut their prices,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “Today’s figures bolster the arguments of those members on the MPC who are seeking to restart quantitative easing.”
The cost of petroleum products dropped 3 percent in May from April, the most since January 2009, the statistics office said. Out of the 10 categories of factory-gate prices tracked by the ONS, two fell on a monthly basis, five rose and three were unchanged.
From a year earlier, producer prices rose 2.8 percent in May, the least since November 2009.
The pound remained lower against the dollar after the data were published. It traded at $1.5438 as of 11:18 a.m. in London, down 0.5 percent from yesterday. The yield on the 10-year government bond dropped 11 basis points to 1.61 percent.
Core producer prices, which exclude the costs of food, alcohol, tobacco and petroleum, were unchanged in May from the previous month and rose 2.1 percent from a year earlier.
Within input prices, oil costs dropped 7.7 percent in May from April, the biggest drop since December 2008. On an annual basis, input prices were up 0.1 percent.
Crude-oil prices have plunged about 20 percent in the past two months. In addition, global food prices had their biggest drop in more than two years in May as the cost of dairy products slumped. An index of 55 food items tracked by the United Nations’ Food & Agriculture Organization fell 4.2 percent from April, the Rome-based agency reported on its website this week. That was the biggest percentage drop since March 2010.
The Bank of England held its bond-purchase target at 325 billion pounds ($502 billion) yesterday and kept its key interest rate at a record-low 0.5 percent. Minutes of the meeting, showing how officials voted, will be published June 20.
In a separate report, the central bank said British consumers’ expectations for inflation rose last month and a measure of their satisfaction with the institution dropped close to the lowest on record. Consumers anticipated prices to increase 3.7 percent in the coming 12 months, up from 3.5 percent in February, the Bank of England said in a quarterly survey. Net satisfaction with the central bank fell to 11 percent from 20 percent in the prior report.
Also today, the statistics office said construction orders rose 4.6 percent in the first quarter from the previous three months and were down 3.6 percent from the same period a year earlier. There were “large increases” in private industrial and commercial new work and decreases in infrastructure and private new housing.
The ONS said new orders in the construction industry remain “at a relatively low level.”
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