A sharp drop in energy prices caused the input prices faced by British firms to fall for the first time since February 2004 and at their fastest pace in four years, official data showed today.
The figures caused the pound to drop on the foreign exchanges as markets judged that inflationary pressures in the UK economy were waning, making it less likely the Bank of England would raise interest rates again.
The January fall in fuel prices included a 29% fall in wholesale gas prices - the biggest drop in more than a decade - which means gas price cuts for households could be on the way.
"Input prices coming in below even our sub-consensus forecast - down by 2% m/m. This is largely a reflection on the price of oil which had plunged ahead of the January data and this effect was compounded by the appreciation in the pound," said Alan Clarke, economist at BNP Paribas.
David Page of Investec agreed: "It should provide some psychological alleviation of inflationary pressures, although it will take some time to filter through to consumer prices.
"It shows that there's little inflationary pressure coming through at the factory gate, especially in manufactured goods and that's going to settle the minds of the monetary policy committee somewhat as it looks forward."
The data showed that output price inflation eased to 2.1% from 2.2% the month before. Howard Archer, economist at Global Insight, noted that prices had actually increased slightly between December and January, showing firms were keen to hold or even widen their profit margins as input prices fell rather than cut prices to their customers.
This still made it more likely than not that the MPC would raise interest rates again in the coming months, he added.
The key figures on January consumer price inflation are due out on Tuesday but most forecasters expect the figure to drop back to 2.9% from the 3% figure - the highest for 15 years - struck in December.
Separate government data showed house prices were 9.9% higher in December than a year earlier. That was up from an annual gain of 8.8% in the previous month.
The Department for Communities and Local Government said the average house price stood at £201,090 in December.
The figures caused the pound to drop on the foreign exchanges as markets judged that inflationary pressures in the UK economy were waning, making it less likely the Bank of England would raise interest rates again.
The January fall in fuel prices included a 29% fall in wholesale gas prices - the biggest drop in more than a decade - which means gas price cuts for households could be on the way.
"Input prices coming in below even our sub-consensus forecast - down by 2% m/m. This is largely a reflection on the price of oil which had plunged ahead of the January data and this effect was compounded by the appreciation in the pound," said Alan Clarke, economist at BNP Paribas.
David Page of Investec agreed: "It should provide some psychological alleviation of inflationary pressures, although it will take some time to filter through to consumer prices.
"It shows that there's little inflationary pressure coming through at the factory gate, especially in manufactured goods and that's going to settle the minds of the monetary policy committee somewhat as it looks forward."
The data showed that output price inflation eased to 2.1% from 2.2% the month before. Howard Archer, economist at Global Insight, noted that prices had actually increased slightly between December and January, showing firms were keen to hold or even widen their profit margins as input prices fell rather than cut prices to their customers.
This still made it more likely than not that the MPC would raise interest rates again in the coming months, he added.
The key figures on January consumer price inflation are due out on Tuesday but most forecasters expect the figure to drop back to 2.9% from the 3% figure - the highest for 15 years - struck in December.
Separate government data showed house prices were 9.9% higher in December than a year earlier. That was up from an annual gain of 8.8% in the previous month.
The Department for Communities and Local Government said the average house price stood at £201,090 in December.
Source: The Guardian
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