Manufacturers struggle as oil price rises sharply

Manufacturers fighting for profits in the recession were dealt a fresh blow today by a sharp rise in costs.

Official figures said input costs for manufacturers rose at the fastest rate for a year last month because of a 30% surge in oil prices since November 2008.

That pushed manfucturers' input prices up 4% on a year ago, putting the squeeze on firms as factory gate prices rose by just 2.9%.

Analysts said weak demand for goods meant factories could not put up prices as much as they would wish - bad news for struggling producers but good news for those concerned about rising inflation.

Howard Archer, chief UK economist at IHS Global Insight, said: "We expect this will remain the case given substantial excess capacity and elevated competition amid still difficult conditions."

Input costs are higher as oil prices rise from lows last winter of around $35 a barrel. They peaked at $147 a barrel in July 2008. Crude was up 54 cents to $72.40 a barrel today.

The Bank of England expects inflation to rise from its present 1.5% to around 3% in the coming months because of the rising oil price and reversal in the VAT cut before falling back below the 2% target later next year.