UK inflation may quadruple by the end of 2017, according to data collated by the National Institute for Economic and Social Research (NIESR).
The leading research think-tank has projected prices will begin to “accelerate rapidly” to around 4 percent, a significant revision from its previous estimate of 3 percent in August.
Speaking to the BBC Today Programme, the Director of Macroeconomics at NIESR said:
“Households have really got a choice Dr Angus Armstrong. Do they spend less or do they start saving less?”
He said as a result of these increases in inflation and lower savings ratios, “the most likely scenario is that they spend much less, hence the weaker [growth] forecast for next year.”
NIESR also maintained that the government imposed freeze on tax credit payments will also have a detrimental effect upon real disposable incomes for the first time since 2012. According to its figures, the thinktank expects that the 0.5 percent reversal in household disposable incomes would damage the wider economy, causing GDP growth to slow to 1.4 percent.
In recent months, the pound has experienced a sharp devaluation as a result Brexit anxieties. The British currency is currently at $1.23, with the NIESR expecting it to remain at around $1.22 and €1.11 both for the remainder of this year and the following.
Simon Kirby, an economist for NIESR commented:
“The depreciation of sterling has been the most striking feature of the post-referendum economic landscape. This will pass through into consumer prices over the coming months and quarters.
“By the end of 2017 we expect CPI to have reached almost 4%. 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.”
The Bank of England is expected to raise inflation forecasts in its quarterly Inflation Report, due to be released on Thursday. Subsequently, Chancellor Phillip Hammond is set to publish his first Autumn statement on government fiscal policy on the 23rd of November.