Hopes of an early cut in interest rates before Christmas were dealt a blow yesterday by a sudden resurgence of inflationary pressures in manufacturing and a bounce-back in high street activity last month.

Record crude oil and wheat prices helped to trigger a 3.2 per cent surge last month in industry’s input costs for raw materials, components and fuel, marking the sharpest such gain for more than two-and-a-half years.

There was little immediate sign of higher manunfacturing costs feeding through to the cost of goods leaving factories, with output prices rising only 0.1 per cent last month. But City economists said that the knock-on effects still risked inflaming inflationary pressures.

“September’s input price surge, unless reversed, is likely to feed into the output headline over the coming months,” David Page, of Investec, said.

He said it would add to fears on the Bank of England’s Monetary Policy Committee (MPC) that the economy is in transition away from an era that was characterised by low global inflationary pressures, making it harder to respond to any future consumer slowdown with looser monetary policy.

Over the year to September, input prices rose by 6.4 per cent, compared with 0.7 per cent the previous month, driven by a rise of more than 8 per cent in the cost of crude oil and a 3.1 per cent increase in home-produced food materials. Output price inflation rose to 2.7 per cent from 2.5 per cent, the ONS said.

As the new Chancellor prepares to announce lower forecasts for growth in his PreBudget Report, he would be grateful for any sign that the Bank would support output with an early cut in rates.

But fresh data on the consumer sector and manufacturing suggest that a cut is less likely, as both show that activity levels continue to be robust.

The British Retail Consortium (BRC) said that sales on the high street rose by 4.9 per cent in September compared with a year ago. That was the strongest figure since March and followed a figure of 3.7 per cent in August.

On a like-for-like basis, which strips out changes in floorspace, sales were up by 3 per cent compared with 1.8 per cent the previous month.

The BRC said that the colder end to the month had helped clothing and footwear sales to pick up, but added that consumers were less confident about making major purchases in the wake of the banking crisis.

Helen Dickinson, head of retail at KPMG, said: “The real acid test will come in the lead-up to Christmas, so there is no time for complacency. There is also no doubt that it will be challenging for many retailers, as the low growth backdrop looks set to continue.”

Manufacturing has also enjoyed a strong end to the summer, according to official figures. Output in the sector rose by 0.4 per cent in August, more than reversing a 0.2 per cent fall the previous month, and taking output levels to a six-and-a-half-year high.

However, overall industrial production, a wider measure, rose by a more modest 0.1 per cent because of falls in energy supply and a reduction in output from the mining sector.

Paul Dales, of Capital Economics, said: “The longer the oil price remains at current levels, the more likely that output price inflation will rise further.”

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