UK Sept PPI input prices up at fastest rate in 2-1/2 yrs

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LONDON, Oct 8 (Reuters) British manufacturers' raw material costs rose more than expected and at their sharpest rate in more than 2 years in September, in a sign that inflationary pressures have not gone away.

The Office for National Statistics said on Monday input prices rose 3.2 per cent in September, more than double the rate forecast by analysts and the biggest rise since January 2005.

That took annual input price inflation up to 6.4 percent from 0.7 percent in August.

Output prices rose by 2.7 percent year-on-year last month, slightly less than expected but still its fastest pace since March.

Most economists expect that interest rates have peaked at 5.75 percent because of the turmoil in financial markets but continuing signs of inflationary pressures might mean that borrowing costs are not about to come down yet.

Separately, the ONS released figures on manufacturing production, which showed output rising by 0.4 percent in August for an annual rate of 0.6 percent. That was slightly stronger than the 0.3 percent monthly gain forecast by analysts.

Overall industrial production gained by just 0.1 percent, leaving it 0.7 percent higher on the year.

The chief culprit for the rise in PPI input prices in September was an 8.1 percent monthly rise in the cost of crude oil. Prices of home produced food materials rose by 3.1 percent, mainly due to record wheat prices.

The ONS said wheat markets remained fuelled by concerns that supplies were inadequate.

REUTERS KR HT1502

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