UK factory gate inflation has fallen

According to the Office for National Statistics (ONS), factory gate inflation fell to 3.1 percent in February compared to 3.5 percent in the previous month, which means that the cost of goods that are leaving UK factories have fallen at their sharpest rate in over 16 months.

The drop is largely due to the fall in oil prices and petroleum products as input price inflation fell from 1.5 percent to 0.5 percent from January to February.

It is a welcome break for the manufacturing industry as over the course of the year crude oil prices were down 37.8 percent and raw material costs were also down as this is the biggest annual inflation rate fall since August 2007.

Jonathan Loynes, a senior analysts at Capital Economics, said the latest producer prices figures for February are an indication that the fall of the pound is not an instant trigger that will spiral UK manufacturers’ production costs, although input prices did increase slightly in February as oil prices began to rebound.

The ONS data does add backing to the decision of the Bank of England to cut interest rates to a record low according to Kenneth Broux, a Lloyds economist, as the main outlook for this troubled period is continued low interest rates.

Story link: UK factory gate inflation has fallen