RTTNews - U.K. output prices declined in July at the fastest pace in almost eight years, while input prices logged the largest fall since 1986 despite improvement in economic activity in the beginning of the third quarter.

A report from the Office for National Statistics in London said that output prices measure for all manufactured products slipped 1.3% annually in July, following an upwardly revised 1% drop in June. Although July's decline was the biggest since November 2001, it was smaller than the expected 1.7%.

Reflecting increases in prices of other manufactured goods, chemicals and tobacco and alcohol products, output prices climbed 0.3% in July from June. Economists had expected output prices to stay flat on a monthly basis. The statistical office revised the decline for June from 0.2% to show a nil growth.

Core output price inflation that strips out volatile sectors stood at 0.2% in July, slightly lower than June's 0.3%. The number was in contrast to the expected 0.5% drop. Month-on-month, core output prices gained 0.5%.

The input price index for materials and fuels purchased by the manufacturing industry decline 12.2% annually compared to a revised 11.8% fall in June. This was the lowest annual rate since September 1986. According to a report released by ONS on July 10, annual decline in input prices was 11% in June.

Driven by a 3.8% fall in the prices of crude oil, input prices slipped 1.4% month-on-month in July, reversing the 0.5% increase seen in June.

Both monthly and annual declines are bigger than expected falls of 0.8% and 10.9%, respectively.

Further, the ONS said core input prices dropped 0.6% from June, taking the annual fall to 3.7% in July.

Elsewhere, a survey conducted by British Chambers of Commerce found a continued threat to the British labor market with one in two firms considering to make redundancies over the coming six months.

Yesterday, the Bank of England had raised the size of quantitative easing measures by GBP 50 billion to GBP 175 billion. The Monetary Policy Committee of BoE judged that maintaining Bank Rate at 0.5% was appropriate to keep inflation on track to meet the 2% inflation target over the medium term.

Annual inflation in June had dropped below the central bank's 2% target for the first time since September 2007. Inflation eased to 1.8% in June mainly on account of lower food and energy inflation. The central bank is set to publish its quarterly Inflation Report on August 12.

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