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Factory gate prices show sharpest fall for 22 years

In a moment of relief for the Bank of England and the government it has been revealed that factory gate prices fell by 0.6% in August, the sharpest fall for some 22 years. While the move only brings factory gate inflation down from 10.3% to 9.7% it is a sign that the fall in the price of oil may be kicking in. So what does this mean?

Inflation is the key to everything in the UK because without a fall there can be no movement in interest rates and without a fall in rates it is unlikely that the economy will recover in the short term. Inflation is expected to peak at over 5% later this year but there are hope that the sharper than expected fall in the cost of manufacturing goods will hold general inflation back and hopefully see it start to fall very soon.

This is literally the first bit of good news that the economy has had for some time and while in itself it will not impact massively on the economy it could set in motion a chain reaction of further assistance. Now that there is light at the end of the tunnel maybe consumer and business confidence levels will begin to steady and then hopefully rise, something which should see the economy bottom out.

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