Record Producer Prices provide welcome boost for Pound
12 May 2008
Sterling surged to session highs against the Euro and Dollar this morning after soaring producer price inflation figures fed the notion that a June rate cut was far from a done deal.
British factory gate prices and producer costs rose at a record pace in April, exceeding market expectations as fuel and food costs rocketed. The Office for National Statistics confirmed output prices rose by an unadjusted 1.4% last month, bringing the annual rate of inflation at the factory gate to 7.5%. Both rates were the highest since the series began in 1986. Meanwhile, input prices rose by an adjusted 2.4% in April, equating to an annual rate of 23.1%, also the highest since records began.
The MPC will not have had access to the figures at last week’s interest rate decision where rates were kept on hold at 5.0%. However, the committee will set out its own inflation forecasts in this week’s quarterly inflation report, which is expected to show inflation topping 3.0% in the coming months. Expectations remain finely balanced, with a bias that the Central Bank will cut interest rates by 0.25% in June; however this will become largely dependent on just how weak economic data is over the coming month.