Recession 'Nears End' Amid Inflation Warning

Industrial (Mexico: ST2000.MX - news) output grew at its fastest pace in 25 years in July, increasing hopes that Britain is emerging from recession.

Official figures showed manufacturing output jumped 3.2% on the month following a drop of 2.9% in June when an extra Bank Holiday for the Queen's Diamond Jubilee damaged production.

This was the strongest rise since July 2002 and well above economists' expectations.

The wider reading of industrial output rose 2.9% - leaping at its fastest pace since February 1987.

However, in a separate release, the Office for National Statistics (ONS) also sounded a note of caution on inflation, measuring a rise in cost pressures facing firms - potentially endangering the Bank of England's expectation that the CPI (Berlin: CEJ.BE - news) measure of inflation will fall back to 2% by the year's end.

The ONS pointed to a 9.3% rise in oil costs in August for the growth in input pricing facing factories.

The price of oil has risen in recent months, back to levels above $110 a barrel, partly as a result of supply disruption in North and South America.

While oil costs are outside the bank's control, the prospect of higher inflation would potentially weigh on the minds of Monetary Policy Committee (MPC (KOSDAQ: 050540.KQ - news) ) members as they face pressure to introduce more stimulus to the UK.

Economists expect asset purchases - or quantitative easing - to be extended beyond its current £375bn total by the MPC in November (Stuttgart: A0Z24E - news) .

The bank has also said that the country is witnessing the beginning of the end of the squeeze on the consumer from high prices and low wage growth.

While wider evidence suggests the UK will emerge from recession in the current third quarter, growth is expected to be minimal.

On Thursday, the Organisation for Economic Cooperation and Development said it expected the UK economy to contract by 0.7% in 2012.

Other forecasters have consistently downgraded their predictions during the course of the year.