June rate cut in doubt

The City was expecting the Bank of England to cut interest rates from 5% to 4.75% next month, having left them unchanged last week. But the price of goods leaving British factories in April up 7.5% over the last 12 months, the fastest rate of price growth since records began in 1986. It came as manufacturers faced a record 23.3% jump in input costs, with crude rising more than 60%, food over 30% and fuel more than 20%.

City economists described the figures as 'appalling' and 'truly horrible' for the Bank of England. This is likely to drive the official rate of inflation over the Bank's 2% target, possibly even breaking 3% and remaining there. This will limit how much the Bank of England can reduce interest rates.

Howard Archer of Global Insight said: 'The April producer price data are truly horrible and very worrying indeed for the Bank of England.

'It highlights why the Bank was unwilling to enact a back-to-back interest rate cut last week, and raises serious questions as to whether the Bank will be willing to cut interest rates from 5% to 4.75% as soon as June, despite current signs that the economic downturn may be deepening and widening.

'For now at least, we still expect the Bank to act in June, but it is by no means a gimme.'