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Producer price index shows renewed strength

The Office of National Statistics has today issued data regarding manufacturing output in the UK which shows that the Producer Price Index rose by 4.1% in the year to February. While this increase in producer prices does not automatically translate into inflation there is no doubt it will put pressure on the rate of inflation in the UK which has shown signs of life of late.

There are many who believe that the increase in producer prices is ultimately a result of the tail end of the depreciation in sterling which occurred during 2009 but there are concerns it will impact upon inflation in the short to medium term. This will give the UK authorities a very difficult balancing act to navigate with the need to retain low interest rates to help economic recovery while also looking to ensure that prices in the UK do not rise too quickly leading to more problems further down the line.

It will be interesting to see how the UK authorities react to this Producer Price Index increase which while possibly expected in the short term is obviously not the perfect scenario as we enter the final stages of the run-in to the next general election.

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