UK factory gate inflation climbs to fresh 16-yr high

LONDON, Jan 14 (Reuters) – Annual British factory gate inflation rose to a fresh 16-year high in December as food price inflation hit a record high and oil prices continued to climb, official data showed on Monday.

The Office for National Statistics said output prices rose 0.5 percent on the month in December, taking the annual rate to 5.0 percent, the highest since August 1991.

Analysts had expected a more modest 4.6 percent. November’s rate was revised up to 4.7 percent from the 4.5 reported last month.

Raw materials costs also rose faster than expected, up 11.2 percent on the year, the fastest pace of growth since May 2006. The acceleration was also driven by food and fuel.

Here, the pick up in price pressures will have been exacerbated by a weakening pound, which has fallen about 10 percent in trade-weighted terms since a peak last July.

Bank of England policymakers did not have the data last week when they decided to hold interest rates steady at 5.5 percent.

But economists still expect the central bank to cut rates at least twice more this year as a deteriorating growth outlook outweighs concerns about inflation.

Interest rate futures remained firmly in positive territory after the data and the pound also showed little reaction.

“Despite the latest pick-up in output price pressures, we do not think today’s news will prevent policy loosening next month,” said George Johns, economist at Barclays Capital.

The ONS said food product prices rose 7.4 percent on the year last month, the highest annual rate since records began in 1992, while petrol product prices rose 20.5 pct on the year, the highest rate since March 2000.

But even core output price inflation, which excludes food and fuel, accelerated to its fastest annual rate since March 2007, having held steady in recent months.

On the input costs side, home produced food prices rose 28.0 percent on the year, the highest rate since records began in 1992, while imported food material prices rose 12.4 percent on the year, the fastest rate since January 1996. (Editing by Mike Peacock)