MANUFACTURERS charged customers less for their goods last month despite a record surge in the cost of raw materials, figures showed yesterday.

The Office for National Statistics (ONS) said higher fuel and crude oil prices meant companies' input costs rose by one per cent between November and last month, and by 17.2 per cent in the year to last month - the highest rate since records began in 1991.

However, companies remained reluctant to pass on rising costs to their customers, with prices at the factory gate falling by 0.2 per cent over the month.

Alan Hall, regional director of manufacturers' organisation EEF Northern, said companies across the North-East had seen margins reduced.

He said: "Last year, there was an exceptionally high increase in input costs for things like energy and raw materials.

"But the syndrome has gone on for a couple of years, where price competition has been tight and manufacturers have had their margins squeezed. It can't continue this way, something will have to give."

Economist John Butler at HSBC said the lag between input and output price inflation seemed longer than in the past.

He said: "Perhaps in a background in which manufacturers' output volumes are lower than a year ago and the prices of foreign manufactured goods into the UK are falling, UK manufacturers have to absorb higher costs in order to protect their share of the market."

He believed the higher costs represented a squeeze on manufacturers' profit margins rather than an imminent inflation threat.