THE COST of raw materials used by British factories rose at a record pace last month, due to the high price of crude oil.

The Office for National Statistics said raw materials cost 1.8pc more over the month, pushing their annual rate of inflation to 11.4pc.

February's rate of increase was also revised up to 11.4pc from 10.7pc, suggesting that factories are facing significant pressure from their costs.

The price of oil surged 15pc higher between February and March and has risen by 51pc in the past year. Yesterday, Brent crude was trading at about $52 a barrel before closing at $53.21.

Factories also faced fast-rising electricity and gas bills, as well as a steep rise in the cost of imported chemicals, which have risen by 14.5pc in the past year.

Meanwhile, inflation of the price of goods leaving the factory gate remained subdued, rising only 0.1pc from February's rate to 2.8pc. In the core measure, which strips out petroleum, food, drink and tobacco, the price of goods actually fell slightly, on average, in March.

The statistics suggest that factories are still unable to pass on their costs, which are biting into their profit margins. Simon Rubinsohn, an economist at Gerrard, said: ``Data released last week showed that the net rate of return among manufacturers fell in the fourth quarter of last year to its lowest level since the first quarter of 2003.''

He said yesterday's figures ``suggest that further erosion in manufacturing profit margins is likely to have taken place in the first quarter of this year.''

James Carrick, economist at ABN Amro, suggested that consumers were unable to bear higher goods prices because of higher interest rates. Mervyn King, Governor of the Bank of England, has pointed to the ``marked'' deceleration of consumer spending growth as a key reason for leaving interest rates unchanged.

The slowdown in consumer spending was probably also the reason for a drop in the level of import growth in the three months to February. The ONS said that the volume of imported goods rose by only 0.2pc, compared to 3pc just five months earlier.

That meant the rise in exports was larger than the rise in imports for the first time in almost two years.

The trade gap in goods narrowed to pounds 4.8billion in February from pounds 5.1billion the month before.

The rise in exports was faster than the rise in imports for the first time in almost two years at 0.8pc. The overall trade deficit including services narrowed by pounds 200m to pounds 3.3billion.

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