Think tank predicts inflation could quadruple in a year

UK inflation is set to quadruple to about 4 per cent in the second half of 2017, according to a think tank estimate.

The rise in prices will “accelerate rapidly” during next year due to the fall in sterling, says the National Institute for Economic and Social Research, revising up the figure from 3 per cent it forecast in August.

The last time the UK CPI hit 4 per cent was in 2011.

In September the index rose to 1 per cent in September jumping to a two year high and up from 0.6 per cent in August, according to the ONS.

The main upward contributors were rising prices for clothing, overnight hotel stays and motor fuel.

Crude oil also pushed up prices increasing 14.2 per cent year-on-year in September, the highest since 2012.

The ONS says the increase in producer price inflation over recent months can be “partly attributed to the changes in the sterling exchange rate”.

The Bank of England will publish its quarterly inflation report on Thursday where it is expected to raise its forecasts for inflation.

NIESR head of macroeconomic modelling and forecasting Simon Kirby says the drop in sterling had been the most striking feature of the economic landscape since the EU referendum.

He says: “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.”

NIESR also said that the UK economy will face “significant risks” and that it would expand by 2 per cent in 2016 but would only grow 1.4 per cent next year.