Under-pressure manufacturers were unable to raise the prices of products leaving their factories last month, figures showed yesterday.

The Office for National Statistics (ONS) said output prices were unchanged in June compared with May, although this was better than the previous month's fall.

At the same time, the ONS said prices of raw materials purchased by firms eased 0.1 per cent during the month despite a 5.7 per cent increase in crude oil costs.

Simon Rubinsohn, economist at fund manager Gerrard's, said the latest data highlighted the continued lack of pricing power in the manufacturing sector.

He said: "With competitive pressures still bearing down heavily on prices any recovery in profitability will be modest at best."

Yesterday's unchanged output prices also highlight the benign inflation picture which led the Bank of England to cut interest rates last week.

The underlying rate of inflation is expected to rise to three per cent today, although economists expect the figure to run at below its 2.5 per cent target in the medium term.

The year-on-year figure for output prices showed a rise of just 1.1 per cent in the year to June, compared with an annual rise of one per cent in the previous month.

Input prices rose 1.9 per cent on a year earlier, up from the 1.4 per cent seen in May because of sharp price falls in the previous year.

HSBC economist John Butler said yesterday's figures showed the lower level of sterling seen over recent months had yet to benefit manufacturers.

He said: "A lower level of sterling is necessary for the economy to rebalance and push the manufacturing sector back out of recession."

Tuesday July 16, 2003