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'Pretty horrid' output figures spread gloom; in association with RBS.

BUDGET tax rises for alcohol and tobacco as well as soaring petrol prices kept factory gate prices at 17-year highs last month.

And in a further blow to the economy, retail sales fell 1.6%. the first drop in two years.

Chancellor Alistair Darling's moves helped trigger a 0.9% increase in output prices between February and March, with prices up 6.2% in the year to last month.

This is the highest pace of increase since May 1991 and will fuel inflation concerns among Bank of England policy-makers.

Tobacco and alcohol prices rose 2.1% in March - the biggest jump since April 2000 - as beer costs soared 2.3%. Petrol leapt 2.9% with price rises for diesel, gas fuel oil and unleaded petrol with oil prices above EUR100 a barrel.

Global Insight's chief UK economist Howard Archer described the Office for National Statistics figures as "pretty horrid" for rate-setters battling to control inflation.

He said: "It highlights the fact that the Bank of England cannot afford to relax on the inflation front and suggests that the Bank continues to have limited scope to cut interest rates."

The earliest Easter for almost a century failed to help the high street as sales fell for the first time in nearly two years.

Wintry weather and consumer caution hit home last month as like-for-like sales fell 1.6%, according to the British Retail Consortium.

The data comes after the Bank of England cut interest rates to 5% from 5.25% and may cool calls for more cuts.

The Bank now has to juggle a slowing economy against warming price pressures.

Barclays Capital economist George Johns said: "The figures serve to underscore the difficult balancing act the Bank of England faces at the moment."

The depressing retail figures confounded expectations of a sales boost from the early holiday period, with almost every sector suffering.

Clothing and footwear stores saw their worst showing for eight years as the weather dampened demand for summer wares, while consumers also cut back on big-ticket furniture and electronic goods.

BRC director general Stephen Robertson said: "Here is the strongest evidence yet that customers are making serious economies and are increasingly concerned about the future. It's clear customers are concentrating on essentials."

Food and drink was one of the few sectors to avoid the gloom, although sales growth was its lowest since last July.

Customers bought Easter eggs and rushed to buy wines and spirits before Chancellor Alistair Darling's Budget duty rises came into force. The BRC said the timing of Easter and bad weather made comparisons difficult.

But Helen Dickinson, head of retail at accountants KPMG, said: "Given the timing of Easter, one thing we expected was this month's figures to be strong. Instead, we have the worst monthly performance since July 2005."

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PROBLEM FOR BANK Bad Easter weather and rising prices kept some shoppers at home last month.
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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Apr 15, 2008
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