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June Factory Gate Prices Rise Again

Figures from the Office for National Statistics (ONS) show that output prices rose 0.9% in June alone, taking the annual rise to over 10%, the largest increase for over two decades. The news is yet another blow to the Labour government and pushes the Bank of England back into a corner, unable to reduce interest rates as this would fuel inflation, but unable to push them higher for fear of killing the economy. So what can be done to resolve this very awkward situation?

Whatever course of action the Bank of England take there will be yet more pain for industry and the consumer in the short term. They seem very keen to fight inflation before trying to refloat the economy which means that there will be no loosening of the money supply and cheaper finance seems to be some way off.

It was surprising to see factory gate prices rise so quickly, but the rise in input costs (i.e. raw material and production cost) has been near 30% in some industries over the last year. This very unique economic situation will certainly get worse before it gets better and even the government's £50 billion money market refloat plan has fallen flat.

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