Blow for Bank as factory prices rise at record rate

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The price of goods leaving British factories in April was 7.5% higher than a year ago, the fastest rate of price growth since records began in 1986. It came as manufacturers faced a record

23.3% jump in input costs, with crude rising more than 60%, food over 30% and fuelmore than 20%.

City economists described the figures as "appalling" and "truly horrible" for the Bank of England.

Rising factory-gate prices are likely to drive the official rate of inflation further above the 2% target and limit how far the Bank can cut interest rates. Figures tomorrow are expected to show inflation neared 3% last month, having hit 2.5% in March.

"The numbers are appalling and very concerning to policymakers," said David Page of Investec. "The outlook for inflation is for a marked rise above 3%, with the risk of it staying there for some time. There are clear signs the economy is slowing significantly but, with inf lation risks equally pronounced, the Bank faces a tough balancing act."

The City was expecting the Bank to cut interest rates from 5% to 4.75% next month, having left them unchanged last week. But if today's grim figures are followed by bad news on the inflation front tomorrow and a downbeat inflation report by the Bank on Wednesday, such a move could well be off.

Howard Archer of Global Insight said: "The April producer price data are truly horrible and very worrying indeed for the Bank of England.

"It highlights why the Bank was unwilling to enact a back-to-back interest rate cut last week, and raises serious questions as to whether the Bank will be willing to cut interest rates from 5% to 4.75% as soon as June, despite current signs that the economic downturn may be deepening and widening.

"For now at least, we still expect the Bank to act in June, but it is by no means a gimme."