Producer prices rise highest in 22 years

Producer prices rose ten per cent in the last year - the highest level since comparable records began in 1986.

The Office for National Statistics (ONS) output price index, measuring prices charged by factories - rose 0.9 per cent between May and June - mainly reflecting rising petrol prices, which were up 34.2 per cent in the last 12 months.

Food prices for the year rose 11.8 per cent.

The output price index for manufactured products excluding food, tobacco and petroleum was up 6.4 per cent in the year to June - the fastest annual rate of increase since April 1982.

Input prices for producers rose 30.3 per cent over the last 12 months.

The rise in costs for producers is now expected to filter through to higher costs on the high street, putting more pressure on inflation, already at 3.3 per cent and expected to rise to over four per cent.

As the Bank of England tries to tackle rising inflation along with a slowing economy, the producer price hikes make the chance of an interest rate cut this year all the more unlikely.

Howard Archer, chief UK economist at analysts Global Insight, said: "These are a pretty horrible set of data overall.

"Ongoing elevated inflationary pressures continue to constrain the Bank of England's ability to deliver any time soon the interest rate cuts that the economy so badly needs.

"We believe it is most likely that interest rates will stay at five per cent for many months to come, as the Bank of England continues to steer a very difficult course between downside growth risks and upside inflation dangers."

He added a cut in interest rates may now have to wait until 2009.

Daniel Barnes