Inflation is expected to continue surging to “astronomical” levels in 2023, nudging the Bank of England to hike interest rates higher and for longer than first anticipated, a thinktank has warned.
The National Institute of Economic and Social Research (NIESR) forecasts that rising gas and food prices will send inflation spiralling to 11% before the year-end, in line with current BoE forecasts, with the retail price index predicted to soar to 17.7%.
Inflation stood at 9.4% in June, based on the consumer price index, while the RPI measure was 11.8%.
A recession over three quarters into next year that would impact the poorest homes was also forecasted by the think tank, along with three consecutive quarters of contraction, according to NIESR deputy director Stephen Millard.
There will be “no respite” for 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,” Millard added.
This is a far more ominous prediction for the UK economy’s future than most recent forecasts.
In June, when hiked interest rates to 1.25%, the BoE raised its forecast of peak CPI from 10% to 11% this autumn, when energy bills rise.
The Bank’s Monetary Policy Committee will have its monthly interest rate decision meeting on Thursday, with the publication of its quarterly review also expected.
Market consensus has pencilled in a 0.5 percentage point increase to 1.75% to try and combat price rises.