Nov. 6 (Bloomberg) -- U.K. producer prices rose for an eighth month in October as oil and import costs climbed and manufacturers sought to defend profit margins damaged in the longest recession on record.

The prices of goods at factory gates rose 0.2 percent from September, when they gained 0.5 percent, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 19 economists was an increase of 0.3 percent. Fuel and raw material costs surged 2.6 percent.

The report suggests factories are finding scope to raise prices as the recession shows signs of ending, although increases may be limited by rising unemployment and sharpened competition. Bank of England policy makers increased their bond- purchase plan by 25 billion pounds ($41 billion) yesterday to 200 billion pounds to keep inflation from falling too far.

“The bank is right to be cautious and they can do more later if they think it’s necessary,” said James Knightley, an economist at ING Financial Markets in London. “There isn’t that much pricing power and there’s a squeeze still on margins,”

The pound rose 0.1 percent from yesterday to $1.6603 as of 11 a.m.

The increase in producer prices was led by electrical and optical goods, along with transport, tobacco and alcohol and petroleum products, the statistics office said.

Core Prices

Prices excluding food, beverages, tobacco and petroleum products rose 0.3 percent on the month and by 2 percent on the year.

The annual rate of producer-price inflation jumped to 1.7 percent from 0.4 percent in September, reflecting the sharp drop in prices a year earlier as crude oil costs retreated from their peak above $145 a barrel in July 2008.

The recession has sapped price pressures from the economy and in August Bank of England policy makers predicted consumer- price inflation may stay below the 2 percent target over the next three years. It stood at 1.1 percent in September.

The increase in fuel and raw material costs last month was the biggest since June 2008 and beat the median forecast for a 1.5 percent increase. Crude oil prices climbed 6.8 percent and sterling’s weakness made imported goods more expensive. Only prices of home-produced food declined. Input prices rose 0.1 percent from a year earlier.

Mondi Group is raising prices of its cardboard packaging as increasing costs of pulp, waste paper and wood squeeze margins. Mondi has announced price increases across all its main packaging paper grades in Europe, the dual London- and Johannesburg-based company said on Oct. 27.

Rising Costs

“Input prices are likely to rise and that will increase pressure on margins and will encourage manufacturers to try to pass on more increases,” said Howard Archer, chief European economist at IHS Global Insight in London.

Signs of an economic recovery are emerging after six quarters of contraction as the pound’s fall and a return to growth in the U.S., Japan, Germany and France boost exports. The pound has fallen more than 4 percent against the currencies of Britain’s main trading partners since early August.

Government figures yesterday showed factory production rose at its fastest pace in seven years in September. Business optimism among manufacturers is at its highest level since April 2007, the Confederation of British Industry said last month.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

Last Updated: November 6, 2009 06:08 EST