UK inflation set 'to quadruple' in second half of 2017 says leading thinktank

UK inflation will accelerate rapidly in 2017 and quadruple to about 4% by the second half of next year, a leading think tank has predicted.

The National Institute for Economic and Social Research (NIESR) has said that consumers' disposable income in 2017 will be hit by the fall in sterling and that the British economy faces "significant risks".

Head of macroeconomic modelling and forecasting at NIESR, Simon Kirby, said consumer prices will rise sharply next year.

"While we expect this to be only a temporary phenomenon, it will nonetheless weigh on the purchasing power of consumers over the next couple of years," he said.

The think tank said the government's freeze on tax credit payments will also drag down real disposable incomes for the first time in four years.

In addition, the 0.5% reversal in real household disposable incomes next year would push down GDP growth to 1.4% from the 2% the UK is expected to get this year.

The prediction comes as the CBI business lobby group cut its forecast for GDP growth in 2017 from 2% to 1.3%.

The Bank of England (BoE) will issue its quarterly inflation report on Thursday (4 November). Consumer Price Index (CPI) inflation rose to 1% in September, up from 0.6% in August.

Samuel Tombs from Pantheon Macroeconomics said: "Fuel, food and technology prices already are rising in response to the weaker pound, and hefty price rises will be seen across the whole spectrum of consumer goods next year," the BBC reported.