Economy: Interest rate cut hopes dashed by rising prices
Manufacturing inflation up in April
Monday, 12 May 2008 12:11
Manufacturing inflation was up in April, denting hopes of an interest rate cut next month.
In the year to April, home sales of manufactured products rose 7.5 per cent, compared with the rise of 6.5 per cent in the year to March, according to the Office for National Statistics.
The index rose 1.4 per cent between March and April as costs rose for producers.
If passed on in full, the changes to excise duty on tobacco and alcohol announced in the Budget would have increased the index by 0.3 per cent in April, the report added.
The price rises are linked to a sharp rise in the costs of materials and fuel, the data shows.
The input price index rose 23.3 per cent from last year, and 2.6 per cent from March, mostly because of high crude oil costs, according to the figures.
Oil is now over $125 a barrel, and an analyst has predicted that it could continue to rise to $200 a barrel.
As a result, inflation on petroleum products rose by 25.4 per cent in April compared to last year.
Food recorded the next highest jump, with a 9.3 per cent increase over the year.
The Bank of England takes inflation measures into account when it sets the interest base rate every month.
Many borrowers have been hoping for a reduction in the rate as the credit crunch continues to impact those with debts, but the bank has always emphasised that its job is to curb inflation, rather than assist the housing market.
"Sharply higher producer price inflation in April highlights why the Bank of England was unwilling to enact a back-to-back interest rate cut last week and raises serious questions as to whether the bank will be willing to cut interest rates from 5.00 per cent to 4.75 per cent as soon as June despite current signs that the economic downturn may be deepening and widening," said Howard Archer, chief UK economist at Global Insight.
"For now at least, we still expect the bank to act in June but it is by no means a 'gimme' and much will depend on just how weak the economic data is over the coming month and how tight credit conditions remain, as well as inflation developments."
Sarah Routledge