LONDON (Reuters) — British factory gate inflation slowed more than expected to its weakest rate in 2-1/2 years in October as petrol prices fell sharply, official data showed yesterday.But policymakers may be worried that core output prices, which exclude food, drink, tobacco and petroleum, rose more than expected in a sign that firms may be recovering pricing power.

The Office for National Statistics said that output prices fell 0.2 percent on the month in October, taking the annual rise to 1.7 percent, the lowest since March 2004.

Analysts had expected a rate of 1.9 percent.

Core output prices, however, rose a seasonally adjusted 0.3 percent, taking the annual rate of increase to 2.5 percent, above forecasts of 2.2 percent.

Input prices were also stronger than expected as the cost of fuel rose by nearly 10 percent on the month in October. That meant firms' overall costs fell a seasonally adjusted 0.1 percent instead of the 0.5 percent drop predicted by analysts.

Overall input price inflation slowed to 3.8 percent — its weakest since July 2004 — from 5.1 percent in September.

"These figures are something of a mixed bag but looking at the recent trend, both input and output price inflation continues to moderate on the back of softer energy prices," said Philip Shaw, chief economist at Investec.

The Bank of England raised interest rates last week partly because it was worried price pressures were picking up in the economy despite a fall in energy costs from record highs earlier this year.

October consumer price data, due today, is expected to show inflation rising even further above its 2.0 percent target from 2.4 percent in September.