January 17, 2006	Tuesday	Zilhaj 16, 1426

LONDON, Jan 16: British firms’ raw material costs rose at a record annual pace last month as fuel prices surged, but analysts said tame factory gate prices left open the posibility of an interest rate cut in the coming months.

Data from the Office for National Statistics on Monday showed input prices rose by a larger than expected 0.9 per cent in December taking the annual rate to 17.2 per cent, the highest since records began in 1991.

Still, Bank of England policymakers, who held interest rates at 4.5 per cent last week, may be reassured by the fact output prices fell for a third month running, suggesting firms are absorbing rising costs, not passing them on to their customers.

News that prices at the factory gate fell 0.2 per cent in December, for a weaker-than-expected annual rate of 2.4 per cent, sent short sterling interest rate futures up to session highs, while the pound fell as dealers bet on lower borrowing costs.

Analysts said the data suggested consumer price inflation — which the BoE targets at 2.0 per cent — would move further down toward target in December. However, it did little to settle the debate when, if any, cut may be delivered.

The expectation is still that the Monetary Policy Committee will hold policy steady for some months to come but the bias is slightly skewed in favour of a further easing, said Simon Rubinsohn, an economist at Gerrard.

Our view is that a cut is unlikely before the summer.

December consumer price data are published on Tuesday at 0930 GMT. Economists expect inflation to fall to 2.0 per cent from 2.1 per cent in November.

The ONS said the jump in input costs was driven by surging crude oil prices to an annual rate of 61.7 per cent, its fastest pace since September 2000. Gas prices soared 81.2 per cent on the year, the biggest increase since records began in 1991.

Even excluding volatile items such as food and fuel, core input prices were the highest in more than a decade.

From an inflation perspective these are reassuring numbers: If manufacturers can’t raise their prices when input cost inflation is running at an all-time high, when can they? said Ross Walker, an economist at RBS Financial Markets.—Reuters