Inflation on the retreat as manufacturers cut prices

There were fresh signs inflation is falling today when prices at the factory gate were shown to be dropping at the fastest pace for 12 years.

Government figures show that output prices — what manufacturers sell their goods for to retailers and other industries — fell 1.2% in June.

Input costs — what factories have to pay for raw materials — slumped 11% in the same month.

Jonathan Loynes, chief UK economist at Capital Economics, said: "The clear message is that, despite some tentative indications that conditions in the manufacturing sector have started to improve a bit, producers are under intense pressure to cut their prices. This bodes well for a fall in core consumer price inflation further ahead."

The figures, which were lower than expected, suggest that rapid inflation — which could have followed the lowering of interest rates — shows little sign of emerging.

Howard Archer at Global Insight said: "June's retreat in producer prices reinforces the belief that consumer price inflation is headed down significantly further over the coming months.

"The data reinforces the belief that the Bank of England could yet very well increase its quantitative easing (QE) programme in August, particularly if the economic and lending data disappoint over the coming month," he added.