Inflation could soar by 4% by this time next year
Published: 2 November 2016 - Jenny Wonnacott
Inflation in the UK is set to quadruple to 4% by the second half of next year according to think tank the National Institute for Economic and Social Research (NIESR).
Households will have to choose between spending less or saving less, says the NIESR
The group has predicted that price increases will "accelerate rapidly" during 2017 as the fall in the pound's value is passed on to consumers. The economy also faces "significant risks," according to the think tank.
Speaking on the BBC's Today programme, NIESR director of macroeconomics Angus Armstrong said: "Households have really got a choice. Do they spend less or do they start saving less?" He added that given the savings ratio was at its lowest since 2008, "the most likely scenario is that they spend much less, hence the weaker [growth] forecast for next year."
The pound has fallen dramatically against the dollar and euro since the Brexit vote in June, and NIESR expect sterling to remain at around $1.22 and €1.11 both this year and next.
Consumer Price Index inflation rose to 1% in September, up from 0.6% in August, according to the Office for National Statistics. This was the highest rate seen in nearly two years.