Record producer inflation dents rate cut hopes

LONDON (Reuters) - Factory gate prices and producers' costs rose at a record pace in April, official statistics show, clouding the outlook for an interest rate cut next month.

The Office for National Statistics said output prices rose an unadjusted 1.4 percent on the month in April, taking the annual rate up to 7.5 percent. Both rates were the highest since the series began in 1986.

Input prices rose an adjusted 2.4 percent on the month, taking the annual rate up to 23.1 percent -- also the highest since records began -- driven by soaring fuel and food costs.

Sterling rose and interest rate futures fell as the stronger than expected data encouraged investors to bet that interest rates may not fall as far as expected this year.

The BoE is widely expected to cut interest rates to 4.75 percent in June, but signs that raw materials costs are still surging and manufacturers are passing on some of those increases to customers could raise an element of doubt.

"The producer price numbers are appalling and very concerning to policymakers," said David Page, an economist at Investec.

"The outlook for consumer price inflation is for a marked rise above 3 percent, with the risk of it staying there for some time."

JUNE RATE CUT DOUBTS

The consumer price index for April is due on Tuesday and analysts expect CPI to rise further above the central bank's 2 percent target to 2.6 percent from 2.5 percent in March.