Inflation to hit 3.4% this year, think tank warns
The National Institute of Economic and Social Research (NIESR) said consumer price inflation (CPI) will peak in the final quarter of the year, before falling back to 2.4% in 2018.
Despite the temporary spike in inflation, NIESR expects the base rate to remain at 0.25% until mid-2019.
The think tank expects consumer spending to remain weak throughout this year and next as rising inflation erodes the purchasing power of households.
Inflation has been rising steadily, hitting 2.3% in February – the highest level in three-and-a-half years – and remaining static in March.
Retail sales figures from the British Retail Consortium, released in April, showed that the rise in inflation was starting to bite, with non-food high street sales suffering the worst fall in nearly six years.
NIESR said the UK economy grew by 0.3% in the first three months of 2017, a marked slowdown from the 0.6% seen in the previous quarter.
It attributed the slowdown to “a softening in service output, consistent with a moderation in consumer spending”.
It forecasts GDP growth of 1.7% this year and 1.9% in 2018.