Fears over inflation mounted as the price of manufacturers' raw materials jumped by 2.6 per cent in October, according to new figures from the Office for National Statistics.

The larger-than-expected increase in so-called input prices was the biggest since June last year, when they rose by 4.6 per cent. It was driven by rising oil costs and the decline of the pound, which made the cost of importing raw materials more expensive. Producer prices fell by 0.2 per cent in September, after rising by 2.0 per cent in August.

Over the year to October, manufacturing input prices increased by 0.1 per cent, after a 6.2 per cent decline in the year to September.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The manufacturers are in a difficult situation. If they increase their prices in response to rising input prices it has inflationary implications. It is more likely that they will try to absorb the costs, but that will squeeze margins and could affect employment and investment plans."

Meanwhile, the price of goods leaving British factories - known as output prices - rose for the second month in October, although at less than half the rate seen in the previous month.

Producer prices climbed by 0.2 per cent in October, compared with a 0.5 per cent jump in September after five months of deflation. Last month's increase reflected price rises in electrical products, transport equipment, alcohol and tobacco and pushed annual inflation to 1.7 per cent.

The new figures come a day after the Bank of England's Monetary Policy Committee voted to increase its quantitative easing (QE) programme by £25 billion to £200 billion, with potentially inflationary consequences. QE aims to stimulate the economy by printing money and buying assets from the banks.

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