Inflation will quadruple in 2017, warns think tank

UK inflation is due to quadruple to around 4% in H2 2017, according to one think tank.

Rising prices will “accelerate rapidly” next year as the fall in sterling directly impacts consumers, the National Institute for Economic and Social Research (NIESR) has warned.

The new figure was revised up from the 3% NIESR forecast in August.

According to the BBC, the think tank also said the UK economy faces “significant risks” with the potential to restrict growth.

Last month, the Office for National Statistics (ONS) said that September saw Consumer Price Index (CPI) inflation hit 1%, compared to 0.6% in August. The figure represents the highest CPI inflation in almost two years.

The Bank of England is likely to raise its inflation forecasts in tomorrow’s (November 3) quarterly Inflation Report.

With sterling having fallen sharply against both the dollar and euro since June’s EU referendum, NIESR expected the pound to remain at around $1.22 and €1.11 this year and next.

The think tank’s head of macroeconomic modelling and forecasting, Simon Kirby, said of the fall in the pound: “This will pass through into consumer prices over the coming months and quarters.

“While we expect this to be only a temporary phenomenon, it will nonetheless weigh on the purchasing power of consumers over the next couple of years.”

Economic data firm Pantheon Macroeconomics’ chief UK economist, Samuel Tombs, commented: “NIESR is right to warn that households are about to endure a renewed period of falling living standards due to soaring inflation.

“Fuel, food and technology prices already are rising in response to the weaker pound, and hefty price rises will be seen across the whole spectrum of consumer goods next year.”

CPI inflation was last at 4% in 2011.

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