Factory gate price inflation surged to a 12-year high in October, fuelled by soaring prices for raw materials ranging from oil to dairy products.

In a blow to mortgage holders, the figures discount the possibility of an interest rate cut before next spring, analysts said.

The surge in today's producer inflation figures does not reflect oil's latest surge towards the $100-a-barrel threshold, suggesting that more bad news on inflation may be on the way.

George Buckley, an economist at Deutsche Bank, said: "The Bank of England is worried about inflationary pressures and this sort of data will perhaps give them reason to pause before cutting rates in the new year."

Meanwhile, the pound rose about a third of a cent against the dollar, as traders betted against lower UK rates making an appearance.

Output prices jumped 3.8 per cent in October from a year earlier, according to the Office for National Statistics.

The rise, well above analyst forecasts, was up from a 2.8 gain in September and was the highest year-on-year figure since December 1995.

The hike in output prices included a 12 per cent surge in the factory gate cost of petroleum products and a 6 per cent increase for food.

The cost of raw materials also rose sharply, by 8.5 per cent, with crude oil costs up nearly a third in a year and domestically- produced foodstuffs up 15 per cent.

Jodie Tiller, an analyst for CIBC World Markets, said: “This morning’s stronger-than-expected PPI report will only add to the hawk’s ammunition at the [Bank of England] and will likely reinforce expectations that a rate cut … is not on the cards before early next year.”

The data follows a decision by the Bank to keep interest rates on hold at 5.75 per cent last week.

Despite that move, many economists had expected policymakers to lower the cost of borrowing in coming months in a bid to boost the UK economy amid fears a global credit crunch may begin to weigh on consumer spending.

Attention is now on tomorrow’s consumer price inflation figures, the government’s preferred inflation benchmark.

Howard Archer, the Global Insight economist, said: “[Today’s] data will reinforce concerns that elevated oil and food prices will feed through to push up consumer price inflation.”

The Bank’s next quarterly Inflation Report, due on Wednesday, will also be pored over for indictaions of the likely course of rates.

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