UK Output Prices Rise More Than Forecast on Fuel, Alcohol - BusinessWeek

February 11, 2012, 9:20 AM EST

By Scott Hamilton

(Adds pound in fifth paragraph.)

Feb. 10 (Bloomberg) -- U.K. factory output prices rose in January at the fastest pace in nine months as manufacturers increased prices of alcohol, petroleum products and clothing.

The cost of goods at factory gates climbed by 0.5 percent from December, the Office for National Statistics said today in London. The median forecast of 19 economists in a Bloomberg News survey was for a 0.1 percent gain. Raw material costs rose by 0.5 percent.

Companies may find it hard to keep raising prices as the economy struggles to avoid slipping back into recession. The Bank of England, which yesterday pledged to pump an extra 50 billion pounds ($79 billion) into the ailing economy, expects consumer-price inflation to fall below its 2 percent target by the end of the year.

"Recent survey evidence on the manufacturing sector has shown some welcome improvement, raising hopes that the sector is past the worst and could achieve modest expansion in the first quarter thereby helping the economy to return to growth," Howard Archer, an economist at IHS Global Insight in London, said before the release. Still, "it is evident that manufacturers still face a challenging environment."

The pound rose 0.1 percent after the data and was trading at $1.5833 as of 9:35 a.m. in London, up 0.1 percent on the day.

Core Prices

On the year, producer prices rose 4.1 percent last month, down from 4.8 percent in December and the slowest annual pace since November 2010, the statistics office said. Prices rose on the month in eight categories and fell in one -- metals, machinery and equipment, the statistics office said.

Core producer prices, which exclude costs of food, alcohol, tobacco and petroleum, climbed by 0.3 percent on the month and 2.4 percent from a year earlier, the slowest annual increase in February 2010.

Input prices rose 7 percent in January from a year earlier, the statistics office said. That's the slowest annual increase since November 2009.

Crude oil prices have fallen to just below $100 a barrel from levels above $112 in April 2011, easing pressure on companies and consumers. Britain's six largest energy suppliers cut their tariffs last month in response to falling wholesale costs.

In a separate report, the statistics office said construction output fell 0.5 percent in the fourth quarter from the previous three months, as previously estimated in gross domestic product data released last month.

--With assistance from Mark Evans in London. Editors:

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

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