Manufacturing costs rose to a 13-year high during March due to record oil prices, forcing companies to pass on price rises to customers and casting further doubt on whether the Bank of England will cut the interest rates next week.

According to the Chartered Institute of Purchasing and Supply/NTC purchasing managers index, the manufacturing sector was unchanged in March with a score of 51.3. A figure below 50 means UK manufacturing is contracting, and above that figure means activity is still growing.

Today’s figures show that input prices increased from 72.7 in February to 76.3 in March, the second highest rate of inflation since 1995.

At the same time, the output price index rose to 60.6, the highest since 1999, showing that manufacturers are willing to pass on rising costs to customers.

While employment increased slightly during March, total new orders fell for the third month in a row, raising a question mark over whether manufacturers can keep increasing the number of staff they employ.

Commenting on today's figures Howard Archer, chief UK and European economist at Global Insight, said: "This will do little for blood pressures at the Bank of England and means that a further interest rate cut as soon as April is very much still up in the air despite markedly tighter credit conditions."

The Bank of England is facing growing pressure over whether to cut the UK interest rate next week. The rate-setting Monetary Policy Committee (MPC) is juggling consumer price index (CPI) inflation above the central bank's 2 per cent target, at 2.5 per cent due to higher food and fuel costs, while the British economy is slowing further with house prices at their weakest since 1996, according to Nationwide.

Since December, the Bank of England’s MPC has cut interest rates twice, to a current 5.25 per cent.

Profitability in the manufacturing sector remain relatively robust in the fourth quarter of 2007, despite facing margin pressure because of rising fuel costs. New figures today showed that total corporate profitability in the final three months of 2007, rose from 15.4 per cent in the third quarter to a record 15.5 per cent.

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