Factory gate prices post record fall

By Sumeet Desai and David Clarke

LONDON (Reuters) - Factory gate prices fell at their sharpest monthly rate in at least 22 years in August and firms' costs also dropped more than expected, in a sign the fall in world oil prices may soon start bringing inflation down.

The Office for National Statistics said on Monday that unadjusted output prices fell 0.6 pct on the month because of lower petrol and scrap metal prices.

That brought the annual rate of factory gate inflation down to 9.7 percent from 10.3 percent the month before.

Input prices dropped by 2 percent, also mainly because of lower oil prices, though still leaving them nearly a third higher than a year earlier.

Economists said the figures augured well for headline consumer inflation peaking next month and then falling sharply over the next year, giving the Bank of England scope to cut interest rates to revive a stuttering economy.

"Today's substantial decline may mark a significant easing in medium-term inflation pressures as cost pressures, inspired by some of the excesses of global demand, finally appear to be abating," said David Page, economist at Investec.

"This would be a massive boost for the Bank of England's Monetary Policy Committee as it struggles to balance the needs of a sickening economy against a still worsening consumer price inflation outlook."

Interest rate futures gained after the data and sterling, already down sharply this month, slipped further as investors upped bets on rate cuts before the end of the year.