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U.K. Output Prices Increase Twice as Much as Forecast

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U.K. January Factory Gate Prices Surge
Services and manufacturing surveys this month indicated the economy’s contraction in the fourth quarter was a temporary setback, giving companies the scope to pass on higher costs to their customers. Photographer: Chris Ratcliffe/Bloomberg

Feb. 11 (Bloomberg) -- U.K. producer prices rose twice as much as economists forecast in January, which may add to concerns the Bank of England is losing control of inflation.

The cost of goods at factory gates jumped 1 percent from December, when it rose 0.4 percent, the Office for National Statistics said today in London. That’s the most since April and exceeded the 0.5 percent median forecast of 14 economists in a Bloomberg News survey.

The Bank of England left its benchmark interest rate at a record low of 0.5 percent yesterday as it endures a bout of above-target consumer-price inflation to help foster the economic recovery. Services and manufacturing surveys this month indicated the economy’s contraction in the fourth quarter was a temporary setback, giving companies the scope to pass on higher costs to their customers.

“There’s probably a lot more of that yet to come further down the road,” said Alan Clarke, an economist at BNP Paribas SA in London. “It tells us that the current elevated level of inflation may be longer lasting that perhaps the bank is hoping for” and there’s an “increasing risk” of a May rate increase.

From a year earlier, output prices rose 4.8 percent, the most since May. On the month, nine out of 10 categories of output prices increased, with the gain led by food, petroleum products and chemicals and pharmaceuticals.

Construction

The pound pared its loss against the dollar after the report. It traded at $1.6062 as of 9:38 a.m. from $1.6098 yesterday.

A separate report from the statistics office showed construction output fell 2.5 percent in the fourth quarter from the previous three months. On the year, output was up 8 percent.

So-called core producer prices, which strip out food, beverages, tobacco and petroleum, increased 0.7 percent in January from the previous month, the most since July 2008, and 3.2 percent on the year.

Input prices jumped 1.7 percent in January from the previous month and the annual price gain accelerated to 13.4 percent, the fastest since October 2008, indicating further price pressures are building.

McBride Plc, the U.K. maker of store-brand household products, said on Feb. 8 that first-half profit fell 31 percent as raw-material costs rose. The company said it was caught in a lag between increases in the cost of commodities and how quickly it can raise its own prices.

Consumer-price inflation accelerated to 3.7 percent in December, the fastest pace in eight months, and Bank of England Governor Mervyn King has said the rate may rise above 4 percent before easing to the bank’s 2 percent target.

In addition to holding the key rate yesterday, the central bank kept it bond-purchase program at 200 billion pounds ($321 billion). The decision was based on new quarterly economic forecasts, which King will present at a press conference in London on Feb. 16.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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