THE cost of goods leaving UK factories fell at the sharpest rate since 2001 last month as the price of raw materials and oil fell.

Output costs weakened by 0.4 per cent between November and last month - the first monthly fall in nine months, the Office for National Statistics (ONS) said.

Analysts said the figure, which was lower than the market expected, added to the argument for a cut in interest rates.

The drop in output costs mainly reflected a fall in the cost of raw materials such as scrap steel in recent months.

Manufacturers also saw their input costs fall by 2.9 per cent over the month, mainly due to lower oil prices. After rising above $55 last year, the cost of a barrel of crude has fallen considerably to about $45.

Economists said this would eventually ease pressure on companies.

John Butler, at HSBC, said lower output prices supported the argument by some members of the Bank of England's rate-setting committee that inflation would be lower than projected and that interest rates would have to be cut.

Separate Government figures showed an increase in house price inflation.

Mr Butler said: "Overall, we would put more weight on the producer price data and argue that, on balance, the news is on the dovish side for rates."