Further evidence of the slump in the computer industry has emerged in a survey showing the price of goods leaving British factories has renewed its downward path.

Wholesale prices charged by computer and office machinery makers slumped 16.7% during the year to July 2001.

The cuts were by far the largest reported among UK manufacturers in the latest producer prices report, and follows reports by computer makers such as Dell of sliding world demand for PCs.

Gateway, the US's fourth largest PC maker, last week opened talks with UK and Irish workers over large reductions in output.

Wholesale prices charged by vehicle makers were also weak in July, falling 3.6% over the year, according to the Office for National Statistics.

But the price of cigarettes surged by 10.6%, year on year.

Two-year low

Overall, producer prices rose 0.1% over the year, the lowest annual rate of increase since the beginning of 1999.

A 0.2% drop in prices between June and July was the first month-on-month drop since February.

Output prices charged by 'traditional' manufacturers, those outside the food, drink, cigarette and fuel sectors, fared slightly better, remaining flat.

The report comes a week after official data confirmed that the UK manufacturing sector had entered recession.

And it follows a survey by the Confederation of British Industry which found that smaller manufacturers were under "extreme pressure".

Oil price effect

But the ONS report revealed that manufacturers were helped last month by a 3% drop in raw material prices.

"This was mainly caused by a fall in crude oil prices," the ONS said.

The price of pulp declined by one fifth, year on year, with food firms benefiting from a 31% decline in coffee prices.

The report will also ease fears that inflationary pressures, which can lead to higher interest rates, are building up in the UK economy.

CBI survey

In its latest survey of confidence among small and medium sized manufacturers, the CBI found that output in the four months to July fell at its fastest rate since October 1999.

Overall, 43% of firms surveyed were less optimistic about business conditions, and only 15% more upbeat.