MercoPress. South Atlantic News Agency

UK producer prices drop in December; further emergency stimulus anticipated

Bank of England left rates at 0.50% and maintained the £ 275 billion stimulus plans

The prices of goods leaving Britain's factories surprisingly fell in December compared with November, confirming expectations that inflation is set to ease further this year, official data showed Friday.

Producer prices dropped 0.2% last month from November -- the first month-on-month decline since June 2010 -- as petroleum products, chemicals, drugs and machinery all fell, the Office for National Statistics said.

Compared with a year earlier, December producer prices rose 4.8%, down from 5.4% in November, the ONS added. Analysts had expected factory prices to have risen by 0.1% on the month and 5.0% year-on-year.

“Today's figures confirm that dis-inflationary pressure in the economy is building,” said Samuel Tombs, economist at research group Capital Economics.

Britain's 12-month inflation dipped to 4.8% in November from 5.0% in October, helped by lower food and petrol prices, and is forecast to fall back much closer to the BoE's 2.0% target during 2012.

The announcement comes a day after the Bank of England left interest rates at a record low 0.50% and maintained its £ 275 billion stimulus plans.

The bank said in a statement that its Monetary Policy Committee (MPC) also opted against changing its quantitative easing (QE) programme at £275 billion (432 billion dollars) but the scheme remains under review.

“The Committee expects the announced program of asset purchases to take until early February to complete. The scale of the program will be kept under review”, said the release.

Many economists now believe that the British central bank could increase its emergency stimulus plans next month to boost flagging economic growth while borrowing rates could remain on hold for the rest of 2012.

The Euro zone region's long-running sovereign debt crisis -- which the Bank of England has cited as the biggest single threat to Britain's economic recovery -- has still to be resolved.

Ahead of Thursday's decision, data showed that British industrial production sank by 0.6% in November, sparking concern about economic growth late last year.

The BoE main interest rate has stood at 0.50% since March 2009 when the bank also began injecting £200 billion into the economy under the radical QE policy. It decided last October to increase QE by another £75 billion.