Business and Finance news

U.K. producer prices jumped the most in 10 months in April after the government raised taxes and costs of petroleum products and motor vehicles increased.

The price of goods at factory gates rose 0.6 percent, compared with a 0.1 percent gain the previous month, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 20 economists was for an increase of 0.2 percent.

The Bank of England yesterday expanded its money-printing program to as much as 125 billion pounds ($188 billion) to counter the threat of deflation. Policy makers still noted that the weakness of the pound has created “upward pressure” on inflation and Governor Mervyn King has said the path of consumer prices will be volatile.

“Inflation is going to be bumpy in the near term,” said James Knightley, an economist at ING Financial Markets in London. “The bank sees it slowing and they’ve left the door open for further stimulus.”

Gilts extended losses after the report. The decline pushed the yield on the 10-year government bond up seven basis points to 3.74 percent, and it was at 3.72 percent as of 10:16 a.m. in London. Yields move inversely to bond prices.

Of the ten categories of producer prices, seven rose on the month and only the cost of metal products fell, the statistics office said. On the year, prices increased 1.2 percent. While that was the smallest gain since 2004, it exceeded the 0.7 percent median forecast in a Bloomberg survey of 21 economists.

Car Parts

Redditch, England-based GKN Plc, a maker of car parts for BMW and Nissan and components for Airbus, said yesterday it returned to profitability in March as a decline in automotive revenue eased and it cut jobs and capital spending cash advance today.

Chancellor of the Exchequer Alistair Darling has previously announced higher taxes on gasoline, and last month he also increased levies on tobacco and alcohol, pushing up producer prices in April, the statistics office said today.

The weakness of the pound has stoked inflation pressures, while improving exporters’ prospects by making their goods cheaper overseas. The pound has fallen about 23 percent against the dollar from a year ago, and slipped more than 11 percent versus the euro, the currency of the U.K.’s biggest trading partner.

Raw Materials

Raw material costs still dropped 1 percent on the month and 5 percent from a year earlier in April, today’s report showed. Fuel costs declined, partly offset by higher crude oil prices. Oil rose to the highest in almost six months yesterday, and copper and rubber prices gained on optimism the global recession may be past its worst.

Bank of England policy makers voted yesterday to increase the size of its asset-purchase program by 50 billion pounds to fight the threat of deflation. The inflation rate dropped to 2.9 percent in March, the lowest in a year.

“Inflation is likely to drop below the 2 percent target later this year, driven in part by diminishing contributions from food and energy prices,” policy makers said in a statement yesterday. “The substantial margin of spare capacity in the economy should continue to bear down on inflation thereafter.”

King will present new quarterly growth and inflation forecasts on May 13. The bank’s previous prediction was for inflation to slow to 0.3 percent in 2011.

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