Prices of goods leaving Britain’s factories rose at a record pace last month as manufacturers battled with the fastest increases in costs for at least 22 years, grim official figures showed today.

The bleak news of mounting inflationary pressures sparked renewed speculation that the Bank of England’s next move may be to raise interest rates, rather than deliver a hoped-for cut.

Prices for goods at factory gates leapt upwards last month by 1.6 per cent from April alone, twice the gain the City expected, and the steepest rise since present records began in 1986.

The further surge in the cost of manufactured products also drove their annual pace of increase up to an all-time high of 8.9 per cent, breaking April’s previous record of a 7.6 per cent year-on-year rise.

The jump in price pressures in industry will inflame the Bank’s worries that the rising cost of manufactured goods will feed through to the shops, stoking already sharp increases in the overall cost of living, and adding to inflationary dangers across the economy.

Many City economists still believe that it is much more likely that the Bank’s Monetary Policy Committee (MPC) will keep interest rates on hold for a protracted period, rather than raise them.

However, today's data left City futures markets betting on higher rates, with a quarter-point increase by September, and two such rises by the end of the year, now fully priced-in.

Markets scrambled to increase bets on higher, rather than lower base rates, with expectations of rate rises charging upwards in the sharpest such moves seen in the City for a decade.

The MPC’s fears over inflation will be aggravated still more by signs that the severe price pressures in industry are no longer confined to the soaring costs of food and fuel, but are spreading to other kinds of goods.

So-called “core” figures, which strip out prices for food products and fuel, showed that prices at the factory gate for other goods jumped last month by 1.2 per cent for a second month in a row, lifting their year-on-year pace of increase to 5.9 per cent, matching a record high set in 1990.

Prices for processed food leaving factories were meanwhile up by 11 per cent from a year ago, the biggest rise since these records began in 1992.

Last month’s surge in factory gate prices came as manufacturers struggled with startling rises in costs.

Overall “input” costs in industry, for raw materials, components and energy, surged by a record 3.8 per cent in May alone. The steep increase left costs a massive 27.6 per cent up from the same time last year, also setting a new record.

Michael Saunders, of Citigroup, noted that input costs have risen more over the past 16 months than in the whole of the previous 21 years.

The main upward pressure on factories’ costs came from the latest jump in oil prices, which climbed by 11 per cent last month. However, prices in seven of the nine main cost categories for factories showed increases last month.

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