Fresh signs that creeping inflationary pressures are starting to threaten the stability of the UK economy emerged yesterday following the publication of figures showing UK food prices are increasing at their fastest pace in 14 years.

Increased prices of basic foodstuffs such as wheat, dairy produce, meat and vegetables have meant that food producers are paying over 6 per cent more for their raw ingredients than they were a year ago — the highest rate since 1993, according to the Office of National Statistics (ONS).

The cost of goods leaving Britain’s factories is also rising — fuelling fears that rising inflation will hamper the Bank of England in cutting interest rates to fend off an economic slowdown. Steep jumps in oil and food prices last month sent manufacturing output price inflation to a 12-year high, the ONS data showed.

The figures were the latest sign that central bankers on both sides of the Atlantic, struggling to cushion their economies from the credit crisis, are having to grapple with inflationary tailwinds of strong demand for commodities in China and India.

The 0.6 per cent rise in output prices in October suggests that manufacturers are trying to rebuild profit margins and pass on higher costs to retailers, which was one of the Bank’s main worries before the financial crisis broke in August. Half of that rise was caused by increases in petrol and food prices alone, the Office for National Statistics said.

Over the year, total output price inflation climbed to 3.8 per cent, well above expectations, and was up from 2.8 per cent the month before.

Food prices rose 6 per cent over the year, their fastest annual rate of increase since 1993. That suggests that inflation expectations could rise, because the increasing cost of staples such as milk and bread is one of the most visible signs of price pressures. Input prices, for manufacturers’ fuel, raw materials and components, also rose — by 8.5 per cent in the year to October, the strongest pace for 15 months.

The Bank’s Monetary Policy Committee (MPC) faces an acute dilemma as it puts the finishing touches to tomorrow’s quarterly Inflation Report. Business surveys suggest that the economy slowed across the board at the start of autumn, with activity in retailing, manufacturing and services all feeling the pinch.

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