RPI inflation will reach ‘astronomical’ 17.7% later this year as think tank warns recession will leave millions of Britons in poverty
- UK inflation expected to reach ‘astronomical’ levels later this year
- Think Tank Warns RPI Could Reach 17.7% Later This Year
- Bank of England will have to keep interest rates high for longer
- Real household income is expected to fall 2.5% by 2022, NIESR warns
A measure of inflation in the UK is expected to hit ‘astronomical’ levels this year, forcing the Bank of England to raise interest rates higher and longer than originally forecast, a leading think tank claims.
Gas prices are rising and skyrocketing food prices appear to push consumer price index inflation to 11 percent by the end of the year.
But the retail price index, no longer an official statistic but used to determine rail fares, student loan repayments and some government payments, is expected to be 17.7 percent, according to the National Institute of Economic and Social Research.
According to NISR. one in five households of 5.3 million will have no savings by 2024
CPI inflation is expected to peak at nearly 11 percent in the fourth quarter of this year and return to around 3 percent a year later, the think tank said.
The NIESR has also warned that a prolonged recession could be imminent, affecting millions of vulnerable people, especially those in the poorest parts of the UK.
With prices staying above income indefinitely, real household income is expected to fall 2.5 percent in 2022 and remain more than 7 percent below their pre-Covid trend after 2026, the think tank said. .
“The accumulated savings of poor households are expected to plummet, leaving them with little or no headroom to absorb the impact of continued high prices of basic necessities,” the findings added.
Forecasts: NIESR expects UK interest rates to remain higher than originally forecast
Stephen Millard, the institute’s deputy director, said the economy would contract for three consecutive quarters and shrink by 1 percent by the spring of next year.
He said there will be ‘no reprieve’ for UK households and businesses from runaway inflation in the near term, adding: ‘we will have to raise interest rates to 3 per cent if we want to cut it.’
On Thursday, the Bank of England summit will vote on whether or not to raise interest rates further. Many analysts believe the Bank’s Monetary Policy Committee will raise interest rates by 0.5 percentage points, pushing the key rate to 1.75% and increasing financial pressure on millions of borrowers.
The NIESR said: “The Bank of England’s Monetary Policy Committee must remain cautious as it walks a fine line between policy tightening too quickly, worsening the recession and too slow, increasing the risk of high inflation in the expectations are embedded.’
Annual consumer price inflation rose to 9.4 percent in June, from 9.1 percent in May, exceeding the bank’s inflation target of 2 percent for the 11th straight month.
According to the think tank, more than 1 million households will “live in poverty” in the coming months because their food and energy bills exceed their disposable income.
About 1.2 million lowest-income families in Britain will have to choose between food and heating as the cost of living rises, the NIESR said.
One in five households, at 5.3 million, will have no savings by 2024 – more than double the current level.
In total, the NIESR estimates 6.8 million will live off paycheck-to-paycheck with savings of less than two months of disposable income.
Adrian Pabst, NIESR’s deputy director for public policy, urged the new prime minister and chancellor to provide immediate emergency aid to the most vulnerable households.
The bleak warnings came when the institute said a recession is likely to hit from October, when the price cap on energy bills jumps again.
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Inflation is rising across the UK and price hikes are endured by millions of households across the country.
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The calculator uses annual RPI data and displays the percentage change over that 12-month period. Figures for 1900-1948 are the official rough estimates from the Office For National Statistics (ONS).
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