Fears over inflation mounted yesterday as the prices of goods leaving British factories rose unexpectedly for the first time in five months.

Producer prices climbed by 0.5 per cent in September, pushing the annual rate of inflation to 0.4 per cent, official figures showed. Analysts had expected an annual decline in prices of 0.1 per cent. The Government’s latest 2p fuel tax increase, which came into force last month, helped to drive up prices, the Office for National Statistics said.

Howard Archer, economist at IHS Global Insight, said: “This is another example of inflation recently being firmer than expected. It suggests that manufacturers may have been trying to take advantage of the recent overall stabilisation in output to try to improve margins.”

The new figures exacerbated fears that consumer prices may start to climb soon, with one leading City economist forecasting that the Bank of England’s target measure of CPI inflation could leap above the 2 per cent target to more than 4 per cent next year.

Inflation, which was running at 1.6 per cent in August, according to the most recent data, has fallen more slowly than analysts anticipated over the past year. While official data out next week is tipped to show that prices fell in September, this is expected to be the last such decline as the base effects of last year’s sharp drop in oil prices starts to feed through to the inflation figures. The rise in VAT at the end of the year is also expected to push up prices.

Most analysts expect inflation to rise to about 2 per cent next year, in line with the Bank of England’s target, but Michael Saunders, economist at Citi, said that it would soar much higher. “Unless the VAT hike is postponed or sterling rises sharply, we expect CPI inflation to average about 3.4 per cent in 2010, and exceed 4 per cent in mid-2010,” he said.

This has exacerbated fears that interest rates may rise sooner than expected, adding to mortgage bills for millions of homeowners.

“The UK’s troublesome inflation trends as recovery emerges probably will prompt the Monetary Policy Committee [MPC] to hike early compared to the ECB,” Mr Saunders said.

However, Colin Ellis, European economist at Daiwa Securities, said: “The MPC should look through short-term volatility in inflation, which is probably due to relative price effects, and focus on medium-term underlying inflationary pressures.”

Fears over the economic outlook are likely to be compounded next week with jobless data expected to show unemployment above 2.5 million, with youth unemployment above one million.

There were glimmers of hope yesterday, with official figures showing that the trade deficit had closed in August from £2.6 billion to £2.3 billion. The trade in goods deficit fell to £6.2 billion, the smallest gap since 2006.

Exports provided further good news, rising in the three months to August for the first time in a year, fuelling hopes that a weaker sterling and an upturn in global demand could be feeding through to exporters.

“We expect net trade to have made a modest positive contribution to GDP in the third quarter and to continue to do so over the coming quarters,” Mr Archer said.

Hopes that the economy will have grown between July and September were further boosted as the Organisation for Economic Co-operation and Development’s gauge of “leading indicators” for the UK, which gives an advance warning of trends, rose for the seventh month in a row in August.

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