Inflation rise inevitable says UK Thinktank

An inflation rise of over 4% has been predicted by the thinktank The Resolution Foundation as post-lockdown spending resumes across the UK.

The spending surge on clothing, hospitality, cars and home improvements comes at a time when there are shortages of raw materials and companies are struggling to fill vacancies, all adding to pressure on prices.

The Consumer Prices Index (CPI) measure of inflation rose to 2.1% in the 12 months to May, up from 1.5% in April. The Bank of England and some City economists forecast that inflation will rise to about 3% over the rest of the year before falling back to the central bank’s target of 2% next year.

However, in a break with the consensus view, the Resolution Foundation said that prices could rise at a faster pace, as consumers spend more of their savings accumulated over lockdown than previously expected, leading to a surge in demand for goods and services. They also predicted that rising prices would squeeze average incomes by £700 by the start of 2022, with low-income families being the worst affected.

The Bank of England’s departing chief economist Andy Haldane, one of the members of the Bank’s monetary policy committee (MPC) which sets interest rates, said in June that the ‘beast of inflation was stalking the land again.’ However, at its last meeting in May the MPC signalled that interest rates would again remain at their historic lows while the rise in inflation was expected to be temporary.

Arcus spokesperson Andrew Cross added; “Ordinary people are already feeling the effects of inflation. It’s not a future threat – it’s already here. The Bank of England may see it as a temporary situation but the impact on household income & living standards is one the government can’t afford to ignore.”