(RTTNews) - U.K. factory gate prices fell at its fastest pace in almost eight years, while input prices recorded its biggest fall since 1997, raising deflationary concerns in the British economy.

Output prices dropped 1.2% year-on-year in June after falling 0.3% in May, the Office for National Statistics said Friday. That was the biggest annual decline since December 2001. Meanwhile, economists had expected a fall of 0.8%.

On a monthly basis, factory gate prices fell 0.2% following an increase of 0.4% in May, reflecting falls in chemical prices and other manufactured products, but it was partly offset by increases in petrol product prices.

The core output price index that excludes food, beverages, tobacco and petroleum rose 0.1% annually after growing 1.2% in May, but fell 0.8% on a monthly basis.

Meanwhile, input prices dropped 11% year-on-year, quicker than a revised 8.6% decline recorded in May. Prices fell for the fourth straight month in June and the decline was the sharpest since April 1997. Month-on-month, input prices rose 1.5%, slightly faster than a revised increase of 1.1% in May.

The Bank of England policymakers are facing the threat of deflation and expects consumer price inflation to fall below its target of 2% over the remainder of 2009. Thursday, the BoE left its key interest rate unchanged at a record low of 0.5% and decided to continue with its GBP 12.5 billion asset purchase scheme.

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