SOARING INFLATION – as bankers demand billions more from Brown

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Soaring factory prices have seen UK producer inflation reach its highest rate, 6.2%, in nearly 17 years in March.

Annual ‘output price inflation’ at 6.2%, the highest annual rate since May 1991, is up from 5.9% in February, said the Office for National Statistics (ONS).

‘Input prices’, paid by firms for imported raw materials and fuels, rose 20.6% in the past year.

For workers, it means the cost of living will continue to soar at a time when the government is demanding pay cuts.

The data came after the Bank of England cut interest rates to 5% from 5.25% last week, in a bid to stimulate growth.

The ONS said: ‘The output price index for home sales of manufactured products rose 6.2 per cent in the year to March, compared with the rise of 5.9 per cent in the year to February.

‘Unadjusted, the index rose 0.9 per cent between February and March, mainly reflecting rises in petroleum product prices.

‘If passed on in full, the changes in excise duty on tobacco and alcohol announced in the Budget would have increased the index by 0.3 per cent in March.’

Meanwhile, ahead of today’s Downing Street meeting between prime minster Brown, chancellor Darling and leading bank bosses, it emerged that the government-owned Northern Rock bank has yet to pass on interest rate cuts to mortgage customers on variable rates.

This is despite Darling’s demands that banks and mortgage lenders do just that.

Northern Rock said its standard variable rate (SVR) is ‘still under review’, a day after Darling said lenders should do more to help homeowners.

A spokeswoman for the bank said it was ‘not abnormal’ for them to fail to change their variable rate immediately after a base rate move.

Northern Rock is in the process of scaling back its mortgage business and has told customers that they could find better deals elsewhere.

Sue Anderson, of the Council of Mortgage Lenders (CML), said that the issue had become a political argument with the government.

She said that the CML wanted instead to concentrate on the key issue in the current mortgage squeeze, which was access to funds from the Bank of England and the government.

Bank bosses called for the Bank of England to increase liquidity in the short term by giving them billion pound hand-outs.

British Bankers’ Association chief executive Angela Knight said that the rate at which banks were lending to each other was ‘very sticky indeed’.

Today’s meeting comes after a collapse in share prices caused by fears of a full-scale slump.

Traders were worried by US giant General Electric’s surprise 6% profit fall late last week, which indicated that a US recession was already underway.