Manufacturers drop prices to try to drive demand

Posted on 10 Jul 2009 by The Manufacturer

UK factory gate prices are 1.2 per cent down on last year, according to official figures, which is the biggest drop in eight years.

A 0.2 per cent fall between May and June is the latest contributor to the yearly output price drop, which is mainly being attributed to the fact that oil prices are now roughly half their record level of 147 dollars a barrel a year ago.

Analysts had forecast a 0.3 per cent rise between May and June but a more-than-expected three per cent fall in chemical product prices saw to the drop.

The fact that prices have fallen so low is indicative of the perpetual weak demand that manufacturer’s have suffered since the second half of last year.

“Producer output prices were far weaker than expected, indicating that manufacturers remain under intense pressure to price competitively,” said Howard Archer of consultancy IHC Global Insight.

He said the Bank of England may now increase its quantitative easing programme in August, especially if lending figures remain low between now and then.

Input prices, meanwhile, are 11 per cent down for the year to the end of June. This is the biggest decline since 2007.