BRITAIN's troubled manufacturers are continuing to see their profit margins squeezed as they struggle to pass cost increases on, new figures have revealed.

Data from the Office for National Statistics (ONS) showed the price of raw materials bought by factories jumped 2.6 per cent in March, representing the strongest month-on-month increase for nearly two years, since May 2000.

The jump was caused by a 15.8 per cent increase in crude oil prices, which surged during the month amid increasing tension in the Middle East.

However, output prices rose only 0.1 per cent, showing that manufacturers were unable to pass on the increases to customers.

John Butler, economist at HSBC, said the figures seemed to be bad news for manufacturers because they gave no evidence that they are able to pass on the increases.

He said this could be down to cheap goods from Asia continuing to win market share, but also said it could be because retailers were not allowing manufacturers to put up prices.

"That lends weight to our view that retailers now have the pricing power at the expense of manufacturers," he said.

Simon Rubinsohn, economist at Gerrard, said: "The inability of manufacturers to pass this cost on may, in part, reflect the expectation that the jump in the price of crude will not be sustained for very long. We suspect that it is also indicative of the intense competitive pressures still affecting much of the industrial sector."

He said one indication of this was the increasing share of Chinese imports into the UK - in early 1999 they made up less than two per cent of total manufactured imports, but they have since risen to about 3.5 per cent.

"So while manufacturing does appear to be in the process of turning the corner, the scope for a meaningful upturn in profits looks limited in the near term," he said.

Mr Rubinsohn said the numbers highlighted the benign inflation trend across much of the economy.

Inflation figures for March are issued today and economists are expecting data to show underlying inflation stayed the same as in February, at 2.2 per cent.

February's figures had fallen back from the above-target 2.6 per cent recorded in January.