U.K. PPI Posts Record Monthly Drop

U.K. factory gate prices declined at a record pace in October, as oil prices continued to fall sharply on concerns that the world economy is sliding into recession, data from the Office for National Statistics showed recently. Output prices, not seasonally adjusted, fell 1% on a month-to-month basis on weaker petro and scrap metal costs, but remained 6.8% higher than a year earlier. That is the largest monthly decrease since records began in 1986. Economists expected the output producer price index to decline 0.4% on a monthly basis and to rise 7.3% on a year-to-year basis in October, according to a Dow Jones Newswires survey last week. In September, output prices fell a revised 0.2% on a month-to-month basis and were up 8.5% from a yearly earlier. The U.K. contracted 0.5% in the 3rd-Q after grinding to a halt in the 2nd. The IMF recently forecast the U.K. would suffer the most painful downturn of any of the Group of Seven economies. The drop in factory gate prices was driven by sharp falls in the price of petroleum products, which decreased 5.6% on a month-to-month basis in October, the highest monthly drop since May 1986. Excluding food, beverages, tobacco and petrol prices, output prices dropped 0.5% on a monthly basis and rose 4.9% on a year-to-year basis, the ONS said. The nonseasonally adjusted input producer price index fell 5.6% on a monthly basis, but was 13.8% higher than a year earlier. That is also the largest monthly decrease and the sharpest slowdown in the rate of annual increase since comparative records began in 1986. In September, input prices fell a revised 1.7% on a month-to-month basis and were up 24% from a year earlier. The falling factory gate prices were broadly in line with expectations of the Bank of England, which warned that consumer price inflation could undershoot its 2% target as the economy falls into recession. The BOE's Monetary Policy Committee recently cut interest rates 1.5% points to 3% in an effort to tackle recession. It was the biggest interest rate cut since 1981 and puts the bank rate at its lowest level since Churchill was PM.