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Factory gate price rise leads to fear of inflation

Factory gate prices in the UK rose by 0.9% in March compared to February, nearly twice the level forecast by analysts. Even though the vast majority of the increase in factory gate prices can be laid fairly and squarely upon the price of oil there are fears that further oil price increases could lead to an increase in inflation which could have disastrous consequences for the UK economic recovery.

The year on year increase in factory gate prices is currently standing at 5% which is the highest rate since November 2008. The potential for factory gate prices to increase in the short to medium-term is something which the Bank of England will be only too aware of and we could see a surprise increase in UK base rates in the second half of 2010. Unfortunately, such a move, although probably merited if inflation continues to rise, would place more pressure upon consumer budgets and could effectively derail the ongoing UK economic recovery.

Just when the UK economy appeared to be getting back on track it seems that there are potential pitfalls ahead in the short to medium-term even if the longer-term outlook is becoming more favourable by the day.

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