Indicating easing inflationary pressures in the British economy, output price inflation in April reached its lowest level in five years.

The Office for National Statistics said on Friday that UK's output price inflation slowed to 1.2% in April, marking the lowest rate since April 2004. Economists had expected factory gate inflation to ease to 0.7% from March's 2%.

Core output price inflation also eased in April to 2.4% from 3.2% in the previous month.

At the same time, output prices registered the highest monthly growth since June 2008. Output prices rose 0.6% in April, following a 0.1% increase in March. The monthly growth was larger than the consensus forecast of 0.2%.

The output PPI was affected by increases in tax on petrol taxes, tobacco and alcoholic drinks. According to the ONS, if passed on in full, the changes in excise duty on petrol, tobacco, and alcohol are estimated to have added 0.2% to the overall output index in April 2009 and to add a further 0.1% in May 2009.

The ONS noted that overall input prices slipped 5% annually, which was the biggest fall since July 2002. The decline witnessed in April was much larger than the 0.4% decrease in March and 3.5% slump expected by economists.

Reflecting a decrease in fuel costs, the input price index for materials and fuels purchased by manufacturing industry showed a 1% monthly fall compared with an increase of 3.9% in the same period of previous year. Prices of imported materials as a whole dipped 1% between March and April.

In March, consumer price annual inflation fell to its lowest level in a year in March, while retail prices dropped for the first time since 1960. Annual inflation stood at 2.9%, while retail prices dropped 0.4%.

Sinking into severe recession, the UK economy contracted more than expected in the first three months of the year, logging its biggest shrinkage since the third quarter of 1979. The gross domestic product declined 1.9% in the first quarter, worse than the final quarter of 2008, when the economy had shrunk 1.6%.

On Thursday, the Monetary Policy Committee of the Bank of England decided to retain its key interest rate at a historical low of 0.5% and to continue with its scheme of asset purchases financed by the issuance of central bank reserves. The central bank raised the size of the scheme by GBP 50 billion to GBP 125 billion.

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