Earlier on Monday, the Office for National Statistics (ONS) said producers' input prices rose 2.4% in April from 1.7% in March, well above market forecasts for a 2.0% increase in seasonally adjusted terms. Year-over-year, April input prices rose 23.1%, the highest increase since records began in 1986. It follows a 20.5% year-over-year rise in March and forecasts for a 21.7% increase.

A spokesperson for the ONS said the rise was due to increases in crude oil, imported parts, chemicals and metals. Concurrently, producers' output prices, which are not seasonally adjusted, were up 1.4% in April against market expectations of 0.7% and March's 1.1% rise.

The annualized figure came in at 7.5%, up from the previous month's 6.5%. Both the monthly and annual rate of output price growth were the highest since records began in 1986, according to ONS. The statistical body attributed the rises in output prices to gains in the manufacturing products, as well as tobacco, alcohol and petroleum products.

Elsewhere in the data set, producers' core output prices rose by a seasonally adjusted 1.0% and by 4.5% year-over-year. Both figures were above market forecasts of 0.3% and 3.2% respectively.

Howard Archer, chief UK economist at Global Insight, described the figures as truly horrible and very worrying for the Bank of England.

"It must be noted that the record rise in headline producer output price inflation figure cannot be attributed solely to higher energy and food prices, as core output prices jumped 1.0% month-over-month and 4.5% year-over-year, which will increase concerns that second round inflationary effects could be increasing," Archer said.

Input prices data also pointed to a continual pressure on manufacturers to raise their prices to protect their margins, he added.

Looking ahead, Archer said, "The sharply higher producer price inflation in April in fact highlights why the BOE was unwilling to enact a back-to-back interest rate cut last week and raises serious questions as to whether it will be willing to cut interest rates from 5.00% to 4.75% as soon as June despite current signs that the economic downturn may be deepening and widening."

Paul Dales, economist at Capital Economics, agrees with Archer. "The core output price inflation jumped showing that this is more than just an energy and food story. The (March 12) Budget increase in alcohol duties explains only a very small part of the rises," he said.

Looking ahead, he thinks the UK consumer slowdown will mean that retailers will be forced to absorb the bulk of these cost increases in their margins. "Nonetheless, these data will maintain the BOE's reluctance to cut interest rates any faster," Dales concluded.

Consistent with Monday's strong producer price data, economists at Barclays Capital expect a further pick-up in trade price inflation, describing the decline in the pound sterling as a "double-edged sword."

They noted that the boost to UK exports from a weaker pound should provide some relief to activity in the face of slowing domestic demand, and help deliver the long-awaited "rebalancing" of the economy.

"At the same time, however, strong import price inflation means that domestically-generated inflation needs to be correspondingly weak if overall inflation is to hit the government's target. This means the BOE will seek to keep domestic demand growth subdued. The longer this strength in import prices persists, the more protracted the domestic slowdown will have to be," they wrote in an investment note.

Gavin Foster, director of Capital Forex, feels the markets' past reliance on core CPI data is fast losing creditability with the investing community.

That said, continuing on the pound sterling front, he noted, "There is no doubt in our minds that the pound remains a very vulnerable currency which is clearly demonstrated when the carry trade starts to unwind. The Euro recovered its poise against most pairings, but especially the pound."

The removal of the key 1.9585 support level has left technical analysts suggesting a move to the 1.89 level and Foster thinks this could happen in the short to medium term.

By Gaurav Sharma, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, This email address is being protected from spam bots, you need Javascript enabled to view it