Spring base rate cut threatened by 6.2% factory gate inflation

by Gill Montia

Story link: Spring base rate cut threatened by 6.2% factory gate inflation

Hopes of a further cut in the base rate in the Spring are under threat with the news that the price of goods manufactured in the UK is rising.

According to the Office of National Statistics, annual output inflation (also known as factory gate inflation) rose to 6.2% during March, up from 5.9% in February.

The monthly rise was the steepest since 1991 and is largely related to energy costs, although higher taxes on alcohol and tobacco from last month’s Budget are also to blame.

Last week, oil prices reached a record high of $112.21 per barrel after weeks of historically high levels and some other commodity prices continue to soar.

The rise in output inflation will have a direct impact on the Bank of England’s ability to cuts interest rates in the short-term.

The bank is charged with the difficult task of balancing inflationary pressures against the threat of a slowdown in the economy.

It is working to the government’s target of 2% inflation as measured by the Consumer Prices Index and in February, this stood at 2.5%.

Meanwhile, the Centre for Economics and Business Research has published a report focussing on the London economy, in which it predicts that growth in the capital will be just 1.3% in 2008 and 1.2% in 2009.