UK Inflation Set To Rise To 4% In 2017UK inflation set to rise to 4% in the second half of 2017, largely driven by the plummeting value of the pound (GBP).
The National Institute for Economic and Social Research (NIESR), expects consumer price inflation (CPI) to peak at 4% in late 2017, a sharp jump from the most recent reading of 1%.
UK Fund managers have largely agreed that inflation could leap as high as 5% over the next year, but warned this could impact badly on real wage growth and limit consumer spending in the short term.
Consumer price inflation has been nudging up gradually over recent months, reaching a 22-month high of 1% back in September.
UK Inflation Set To Rise To 4%NIESR also warned that rising inflation could impact real disposable income, as consumer spending power takes a hit.
Simon Kirby, NIESR’s head of macroeconomic modelling and forecasting, expects the dramatic fall in sterling, which has been prompted by the UK’s vote to leave the European Union, to be the cause of a leap in consumer price inflation.
Over the past three months, sterling has hit a 31-year low against the dollar and a five-year low against the euro.
He said the depreciation of sterling has been the “most striking feature” of the post-referendum economic landscape, and suggested it will pass through into consumer prices over coming months, with inflation reaching 4% by the end of next year.
But the think tank predicted that consumer price inflation will fall back to the Bank of England’s 2 per cent in 2020.
Mr Kirby said: “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”.
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