Market News

UK inflation will soar to ‘astronomical’ levels over next year, thinktank warns - THE GUARDIAN

AUGUST 03, 2022

Most analysts have pencilled in a majority of the MPC’s nine members voting for a 0.5 percentage point increase in the Bank’s base rate to 1.75%, pushing most mortgage rates to 3.5%.

Concern about the increase in the cost of living this year has become the top issue for households, according to recent polls by Ipsos Mori, and have dominated the debate between the two candidates vying for the leadership of the Conservative party.

In May, the Bank said inflation would rise slightly above 10% and fall quickly as interest rates of about 2% began to depress consumer demand.

NIESR said it expected the Bank to continue hiking rates until they reached 3% and keep them in place for longer than previously expected to bring inflation down to 3% by the end of next year.

While about 80% of mortgage borrowers are on fixed rate products, millions of them will need to remortgage to higher interest rates over the next year. Higher mortgage rates also feed into private rental costs, which have already risen sharply in recent years.

The thinktank said below inflation wage rises would become entrenched and by 2026 would mean that real incomes, after inflation is taken into account, would be 7% below the pre-Covid trend.

Jagjit Chadha, the director of NIESR, said the incoming prime minister should “focus economic policy on redistributing resources to the most financially vulnerable households and maintain public services”.

He said it made economic sense to protect vulnerable families, renewing the institute’s call for a rise in Universal Credit payments of £25 per week at a cost of £1.35bn from October 2022 to March 2023.

Related: Why do UK banks seem so optimistic despite the cost of living crisis?

The government should also raise the energy grant from £400 to £600 for 11 million low-income households, at a total cost of £2.2bn, he said.

Chadha added that “to turn some of the levelling up rhetoric into reality, the government should consider doubling the financial support for the Towns Fund from £4.8bn to £9.6bn and expand the remit of the UK Infrastructure Bank; increasing its capital from £14bn to £50bn”


This website uses cookies We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that you've provided to them or that they've collected from your use of their services
Real Time Analytics