British manufacturers hiked prices in March at the fastest rate since 1991, faced with the strongest rise in costs since records began in 1986, data showed today, raising the risk of a sharp consumer price spike.
The stronger than expected figures, which the Bank of England did not see before it cut interest rates to 5 per cent last week, highlight the tricky balancing act facing policymakers this year as the economy slows but inflation accelerates.
The central bank is widely expected to cut rates again this year and policymakers argue a slowing economy will help tame inflation in due course, but they may find it harder to justify several more rate cuts if prices continue to surge higher.
"We maintain that so long as the credit crunch can be contained over the coming months, the Bank will remain cautious about cutting rates further," said David Page, an economist at Investec.
The Office for National Statistics said unadjusted output prices rose 0.9 per cent on the month in March, taking the annual rate up to 6.2 per cent, above analyst forecasts for a slight easing and the highest annual rate since May 1991.
Annual input price inflation also came in stronger than expected, rising to a record 20.4 percent in March from 19.9 per cent in February. Analysts had expected a reading of 19.3 per cent.
"This clearly illustrates inflation pressures building up at a producer level and heralds further CPI pressure over the coming months, "Mr Page said.
Consumer price inflation figures for March will be published tomorrow and economists expect the data to show prices rising 2.6 per cent on a year ago, up from 2.5 per cent in February.
"Risks are skewed to the upside, with the early timing of Easter a possible source of upside pressures," said Luigi Speranza, an economist at BNP Paribas.