U.K. Factory-Gate Prices Unexpectedly Fell in December on Fuel-Price Drop

By Jennifer Ryan and Scott Hamilton - Jan 13, 2012 4:44 PM GMT+0700

U.K. factory output prices unexpectedly fell in December for the first time in 18 months as the cost of petroleum products such as gasoline plunged.

The cost of goods at factory gates declined 0.2 percent from November, the Office for National Statistics said today in London. Annual price growth slowed to 4.8 percent, the least in a year. On the month, economists had forecast a 0.1 percent gain in December, according to the median of 17 estimates in a Bloomberg News survey.

Declines in prices for commodities such as oil may ease inflation pressure in the economy as producers and manufacturers pass lower costs onto consumers. The Bank of England, which maintained its bond-purchase target at 275 billion pounds ($422 billion) yesterday, has forecast that consumer-price growth will ease “sharply” this year.

“Output-price inflation has been fairly benign over recent months,” said Victoria Cadman, an economist at Investec Securities in London. “That should contribute to the sharp fall in headline inflation that we expect to see early this year.”

Out of 10 categories, four recorded declines in prices, four rose and two were unchanged. Prices for petroleum products dropped 0.9 percent in December from November as diesel and gas oil fell 1.2 percent. Chemical and pharmaceutical prices declined 0.9 percent. Food prices rose 0.1 percent.

The pound was little changed against the dollar after the report. It traded at $1.5343 as of 9:37 a.m. in London, up 0.1 percent from yesterday.

Core Prices

In a separate report, the statistics office said construction output rose 0.2 percent in November from the previous month, when it plunged 1 percent. From a year earlier, output was down 1.6 percent.

Core producer prices, which exclude costs of food, alcohol, tobacco and petroleum, slipped 0.1 percent on the month and were up 3 from a year earlier, the statistics office said.

Input prices fell 0.6 percent in December from the previous month and were up 8.7 percent from a year earlier, the statistics office said. That’s the slowest annual increase since October 2010.

SuperGroup Plc, the U.K. owner of the Superdry fashion chain, expects to cut prices this year as it adds suppliers in India and cotton costs ease, Chief Executive Officer Julian Dunkerton said on Jan. 11.

Crude oil prices have fallen to $99.62 a barrel from about $115 a barrel in May 2010, easing pressure on companies and consumers. Electricite de France SA’s U.K. unit and Centrica Plc said this week they will cut power prices for households. World food prices fell 2.4 percent in December from the previous month, led by grains, sugar and oilseeds, the United Nations’ Food and Agriculture Organization said yesterday. Copper has fallen 19 percent in the past six months.

To contact the reporters on this story: Jennifer Ryan in London at jryan13@bloomberg.net; Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net