Price rises fuel inflation fears

Factory gate prices increased at their fastest rate in more than eight years as firms struggled with higher costs, according to the Chartered Institute of Purchasing and Supply (CIPS).

The survey will add to expectations that the Bank of England's Monetary Policy Committee (MPC) will hold rates at 5.25% on Thursday due to lingering inflation concerns.

The CIPS output prices index rose to 59.9, the highest since it began collecting data in November 1999. A reading over 50 indicates growth.

Capital Economics' UK economist Paul Dales said: "The MPC will be very concerned that despite the clear weakening in the activity environment, price pressures are still rising."

The CIPS survey also showed input costs driven up at their highest rate since November 2004 by higher prices for oil, energy, chemicals, metal and plastics.

Economist Howard Archer, of Global Insight, said: "The relatively good news is that the February manufacturing purchasing managers showed a modest pick up in manufacturing activity in February, which following on from latest surveys by the CBI and Engineering Employers Federation indicates that the sector is currently showing a fair degree of resilience in the face of major headwinds.

But, he warned: "The very bad news, which is likely to fray nerves at the Bank of England, is that price pressures picked up markedly.

"Indeed, the output prices index jumped to the highest level since the survey began in 1999, while input prices rose at the fastest rate since November 2004 thereby heightening the pressure on manufacturers to raise their prices to support their margins."

Although activity among manufacturers rose marginally to 51.3 in February, this follows a two-and-a-half-year low during the previous month and the sector remains in danger of slipping into recession.