Competitive pressures and falling raw material prices have prompted the sharpest fall in British manufacturers' prices for at least 40 years.

Official figures showed the price of finished goods, excluding volatile products such as food, drink, tobacco and petroleum, dropped 0.5 per cent in the year to November, the biggest fall since records began.

Economists said faltering domestic demand was forcing retailers as well as manufacturers to run down stocks of unsold goods, a trend which was likely to continue, leading to further falls.

A sustained period of deflation in manufacturing could severely erode producers' margins. Until now, weak commodity prices and the effects of a strong pound on the value of imported raw materials, while contributing to a fall in output prices, have also provided some relief for British manufacturers by pushing production costs lower.

The Office for National Statistics said the price of goods leaving the factory gate rose 0.1 per cent in November, the same rate of monthly growth as in October and the lowest since 1960.