Bloomberg News

U.K. Producer Prices Fall Most Since 2008 as Oil Costs Drop

July 06, 2012

U.K. Producer Prices Fall Most Since 2008 as Oil Costs Drop

Prices of goods at factory gates fell 0.4 percent from May, when they dropped 0.2 percent, the Office for National Statistics said today in London. Photographer: Paul Thomas/Bloomberg

The price of goods leaving U.K. factories fell the most in more than 3 1/2 years in June as a plunge in crude-oil costs eased pipeline inflation pressures.

Output prices fell 0.4 percent from May, when they dropped 0.2 percent, the Office for National Statistics said today in London. It was the biggest decline since November 2008. The median forecast of 15 economists in a Bloomberg News survey was for a 0.2 percent drop. Raw-material costs fell 2.2 percent.

The Bank of England increased its asset-purchase target to 375 billion pounds ($583 billion) yesterday and said consumer- price inflation was “more likely than not” to undershoot the 2 percent target without extra stimulus as global growth weakens. Recent reports suggest the U.K. economy remains in a recession, with manufacturing and building output declining in June and services expanding at the slowest pace in eight months.

Today’s data “are benign, supporting hopes that consumer price inflation will head down appreciably,” said Howard Archer, an economist at IHS Global Insight in London. “This would give the economy much needed support by easing the squeeze on consumers’ purchasing power. It would also facilitate further stimulative action later this year by the Bank of England should the economy fail to improve.”

The pound was little changed against the dollar after the report and was trading at $1.5545 as of 10:23 a.m. in London, up 0.1 percent on the day.

Cheaper Oil

Out of the 10 categories of factory-gate prices tracked by the ONS, four fell in June from May, three were unchanged and three rose. Petroleum products and chemicals contributed most to the decline, as crude-oil costs fell 9.1 percent, the biggest decline since December 2008.

From a year earlier, producer-price inflation eased to 2.3 percent from 2.9 percent in May, the slowest since October 2009.

Core producer prices, which exclude the costs of food, alcohol, tobacco and petroleum, fell 0.2 percent in June from the previous month, the most since June 2009. They rose 2 percent from a year earlier, the least since January 2010.

The Bank of England also kept its key interest rate at a record-low 0.5 percent yesterday. Explaining its decision, it said the economy has contracted for the past two quarters and indicators “point to a continuation of that weakness in the near term.” It also said that commodity prices have fallen, “which should help to moderate external price pressures.”

Fuel and raw material costs fell for a third month in a row in June, leaving input prices 2.3 percent lower than a year earlier. That was the first annual decline since September 2009.

Still, there are risks after crude-oil prices surged about 11 percent in the past week, said Blerina Uruci, an economist at Barclays Plc in London.

The slowdown in input-cost inflation in the second quarter has been “primarily driven by a strong fall in oil prices,” she said. “The pick-up during the last week, if sustained, poses some risks to the continuation of the downward trend.”

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

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


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