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UK inflation to hit 3.9% in early 2022, 2% in 2023, predicts NIESR
05 Aug '21
2 min read
Pic: Shutterstock
UK consumer price inflation will reach 3.9 per cent early next year, almost double the Bank of England’s (BoE) target, but is expected to come down to 2 per cent the year after if the BoE starts raising interest rates, the National Institute of Economic and Social Research (NIESR), a leading think tank, recently forecast.
NIESR also revised up its growth forecast for 2021 by 1.1 percentage points to 6.8 per cent, broadly in with the most recent forecasts from the BoE and the International Monetary Fund (IMF).
After witnessing its biggest slump in over 300 years last year due to the novel coronavirus pandemic, the UK economy has been recovering rapidly this year.
A sharp hike in oil prices and bottlenecks in supply chains have, however, pushed up inflation in the country and most other Western economies, with NIESR’s forecast suggesting British inflation is on course to hit its highest since late 2011.
“To prevent a possible dislodging of inflation expectations, the MPC should prepare the ground for normalising its monetary policy stance, and this involves clearly communicating how Bank Rate and asset purchases and will be adjusted in response to higher inflation,” NIESR deputy director Hande Kucuk was quoted as saying by a global newswire.
The BoE’s monetary policy committee should emphasise that policy tightening would be gradual, to avoid a sudden tightening of financing conditions that could derail recovery, she added.
Unemployment was likely to rise by 150,000 to 5.4 per cent of the workforce after the government’s furlough programme stopped at the end of September, NIESR said.
The BoE’s last full set of forecasts in May predicted inflation would peak at 2.5 per cent at the end of the year, but in June it revised this higher to see a peak of more than 3 per cent.
NIESR also revised up its growth forecast for 2021 by 1.1 percentage points to 6.8 per cent, broadly in with the most recent forecasts from the BoE and the International Monetary Fund (IMF).
After witnessing its biggest slump in over 300 years last year due to the novel coronavirus pandemic, the UK economy has been recovering rapidly this year.
A sharp hike in oil prices and bottlenecks in supply chains have, however, pushed up inflation in the country and most other Western economies, with NIESR’s forecast suggesting British inflation is on course to hit its highest since late 2011.
“To prevent a possible dislodging of inflation expectations, the MPC should prepare the ground for normalising its monetary policy stance, and this involves clearly communicating how Bank Rate and asset purchases and will be adjusted in response to higher inflation,” NIESR deputy director Hande Kucuk was quoted as saying by a global newswire.
The BoE’s monetary policy committee should emphasise that policy tightening would be gradual, to avoid a sudden tightening of financing conditions that could derail recovery, she added.
Unemployment was likely to rise by 150,000 to 5.4 per cent of the workforce after the government’s furlough programme stopped at the end of September, NIESR said.
The BoE’s last full set of forecasts in May predicted inflation would peak at 2.5 per cent at the end of the year, but in June it revised this higher to see a peak of more than 3 per cent.
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