UK factories cut prices, helping Bank of England's inflation fight

Britain’s manufacturers unexpectedly reduced their prices in December by the most since April 2020, welcome news for the Bank of England, which is weighing up how much higher it needs to take interest rates to fight soaring inflation.

Output prices fell by 0.8 per cent in December from November, the Office for National Statistics said on Wednesday (Jan 25).

Input prices paid by factories fell by 1.1 per cent in month-on-month terms, also the biggest drop since April 2020, when much of Britain’s economy shut down at the start of the coronavirus crisis, the ONS said.

Economists polled by Reuters had expected producer output prices to rise by 0.3 per cent on a monthly basis, and for input prices to fall by 0.6 per cent month-on-month.

Britain’s main inflation measure – the consumer prices index – fell in November and December, but at 10.5 per cent it is more than five times the BOE’s target.

The central bank is watching for signs of future inflation pressure. Investors expect the BOE to raise interest rates for a 10th time in a row on Feb 2 with most pricing in another half-percentage-point increase to 4 per cent.

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The ONS producer price inflation data for November and December was published later than unusual after the statistics office detected problems with the prices data it uses.

In annual terms, output prices rose by 14.7 per cent in December, its fifth consecutive slowing, and input price growth was 16.5 per cent, its sixth straight slowdown from a record high of 24.6 per cent.

In November, output prices fell by a monthly 0.1 per cent and rose by an annual 16.2 per cent while input prices in November fell by 0.2 per cent and rose by 18 per cent respectively, the ONS said.

It said the impact of revisions relating to its data corrections – going back to January 2021 – on headline indices was small. REUTERS