Prices at factory gates coming down as manufacturers reduce costs

Factory gate prices are coming down as manufacturers react to lower input costs, according to Howard Archer, chief economist at IHS Global Insight, .

He said: “The sharp retreat in oil prices and lower imported metals prices is easing the pressure on manufacturers’ margins and giving them increased scope to limit prices to win business.

“Meanwhile, the current weakness of the economy and muted manufacturing activity means that more companies feel the need to price competitively to try and gain, or even retain, business.”

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Falls in inflation come as welcome news for the economy after years of soaring price rises, which saw consumers rein in spending - a major factor in the UK’s double-dip recession.

Earlier this week, the British Retail Consortium said overall shop price inflation slowed to 1.1 per cent in June from 1.5 per cent in May, its lowest level in two and a half years, while food inflation fell to 3.5 per cent from 4.3 per cent. The fall was caused by crude oil prices dropping by a quarter on three months ago, and food commodities such as coffee and sugar also descending sharply, it said.

A continued fall in inflation would give the Bank of England more freedom to roll out fresh emergency measures to stimulate the UK’s struggling economy.

The Bank announced on Thursday that it would pump an additional £50bn into the economy under its quantitative easing money printing programme.

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