Inflation will soar to ‘astronomical’ levels over next year, thinktank warns
Inflation will soar to “astronomical” levels over the next year forcing the Bank of England to raise interest rates higher and for longer than previously expected, according to a leading thinktank.
The National Institute of Economic and Social Research also forecast a long recession that would last into next year and hit millions of the most vulnerable households, especially in the worst-off parts of the country.
NIESR said gas price rises and the escalating cost of food would send inflation to 11% before the end of the year while the retail prices index (RPI), which is used to set rail fares and student loans repayments, is expected to hit 17.7%.
Stephen Millard, the institute’s deputy director, said the economy would contract for three consecutive quarters, shrinking the 1% by the spring of next year.
He added there will be “no respite” for British households and businesses from “astronomical inflation” in the short term and “we will need interest rates up at the 3% mark if we are to bring it down”.
As the government faces calls to step in with further support for hard-pressed families, NIESR said average incomes would fall by a record 2.5% this year, leaving millions of families to use savings or expensive credit to pay essential heating and food costs this winter.
In its half-yearly economic health check, the thinktank said the number of households with no savings was set to double to 5.3 million by 2024. Families in the north-east, which rely heavily on public sector jobs, were the most likely to see their savings disappear after using them to pay for day-to-day bills.
The report painted a gloomier picture than most forecasts of the UK economy, which have tended to play down the likelihood of a long period of contraction.
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