Factory gate prices fell for the fourth month in a row in November as the cost of petrol tumbled at a record rate, official figures showed yesterday.
Output prices fell by 0.7 per cent between October and November, driven by an 8.3 per cent fall in the cost of petrol products – the sharpest monthly decline since records began in 1986.
This left the annual rate of output price inflation at 5.1 per cent – the lowest since December 2007 – the Office for National Statistics said (ONS).
The fall in petrol prices comes as oil slides to less than a third of the record $147 a barrel reached in mid-July. IHS Global Insight economist Howard Archer said the figures added to the “now widespread evidence that inflationary pressures are now in full retreat”.
Official UK inflation reached a peak of 5.2 per cent in September – more than double official targets – but is set to fall sharply as price pressures recede and the UK slips into recession.
Input costs for manufacturers fell 3.3 per cent between October and November, the ONS said, reflecting a 19 per cent drop in crude oil prices over the month.
The overall fall in input costs came despite a weaker pound lifting the price of imports such as electronic valves and tubes. In the year to November, the cost of imported parts and equipment rose 16.5 per cent – the highest rate of annual increase since records began in January 1999.
But experts said the Bank of England had room to cut rates further to avoid the UK falling into a deflationary spiral as demand falls off and prices come down in a recession.
The Bank’s Monetary Policy Committee (MPC) has already slashed rates to two per cent – equalling the all-time low – but borrowing costs are forecast to fall further still in January.
Paul Dales, from Capital Economics, said: “The further fall in producer prices in November provides more evidence that deflation is now becoming the greatest policy concern and suggests that the MPC will cut interest rates further in the New Year.”