Price rises point to recovery in British industry

Prices of British goods are rising at their fastest rate for almost eight years, according to figures yesterday that are the latest to point to a resurgence in UK industry.

Factories raised their prices by 0.3 per cent in December, the biggest rise since September 1995, the Office for National Statistics said. Analysts are now waiting to see if this is supported by another strong rise in output when official figures for November are released today.

"We expect price pressures to continue to build in the coming months as the manufacturing recovery continues," said Nick Verdi, a UK economist at Barclays Capital. This would help manufacturers rebuild their profit margins, which creates a virtuous circle by encouraging factories to increase investment spending.

However it could also send a warning signal to the Bank of England if its economists believe it is a sign of incipient inflationary pressure.

The Office for National Statistics said prices of goods leaving the factory gate rose 0.2 per cent on the month to leave the annual rate at 1.8 per cent, the highest since March. Analysts had predicted a 0.1 per cent monthly rise.

However excluding volatile food, drink, tobacco and petroleum prices, they rose 0.3 per cent on the month, the strongest since September 1995. The annual rate of so-called "core" inflation rose to 1.6 per cent, the highest since June 1996.

Economists said rising goods prices would feed through to inflation over the coming months. "The core output prices show that disinflationary pressures are no longer there," said David Page, an economist at Investec. "It's something the Monetary Policy Committee will watch."

Analysts expect today's figures to show that the manufacturing sector, which makes up almost a fifth of the economy, expanded by 0.3 per cent in November. This would follow the 1.1 per cent surge recorded in October.

There was further good news from yesterday's survey in the form of a 0.2 per cent fall in the cost of manufacturers' raw materials as the recent strength of the pound made imported goods cheaper.