UK Manufacturing Firms Enjoy Falling Costs

By Stewart Douglas

Manufacturing firms in the UK have enjoyed falling costs over the month of August, exceeding previous analysts expectations, according to figures released today.

In the figures released by the Office for National Statistics, direct expenses among UK manufacturing companies were down by 0.5%, whilst the price of goods sold by manufacturers nationwide rose by 0.2% over the same period.

UK manufacturing has been enjoying something of a turnaround in recent months after years of sluggish performance, leading many analysts to expect interest rates to continue to stay as they are for the time being at a peak of 5.75%.

Contributing to the reduction in costs was thought to be falling fuel prices, as well as the lower price of oil and metals as compared to the highs of recent months.

The news is taken as an indicator that inflation is now well within control in the UK, which would support the proposition that interest rates will stay at 5.75% as long as inflation is posing a significant threat.

The Bank of England, which chose to maintain rates at 5.75% at a meeting of its Monetary Policy Committee last week, had been widely expected to eventually set rates at a round 6.0% in order to dampen the inflationary pressure, most likely by the end of this calendar tear.

However, a spate of recent economic indicators have suggested that inflation remains within the government’s overall target, and that there may be no need for further interest rate rises which could be detrimental to economic growth, particularly at a time where the threat of widespread sub-prime lending in the US could spread to the UK market.

Whilst the level of output growth rose in line with expectations, the cost savings seen by UK manufacturers were significantly below widespread opinion for the period, suggesting that perhaps analysts had overestimate the inflationary pressures still lingering in the UK economy.