Brits warned inflation could rise to 5% ‘by Christmas’ after summer fall
SUMMER sales and big discounts on clothes have helped inflation drop to two per cent.
But experts have warned the fall — down from 2.5 per cent in June — could be just a temporary lull before it hits five per cent in the run-up to Christmas.
The month-on-month drop in the Consumer Prices Index figure takes inflation to the Bank of England’s target and was lower than forecasts.
And it suggests the Bank is not under any immediate pressure to push up interest rates.
But economists believe that the cost of living will climb again from autumn — raising prices on many items for cash-strapped families as they prepare for Christmas.
The Bank of England had warned that inflation could hit four per cent by the end of the year as prices are pushed up by shortages of goods and the strength of the economic recovery.
And economist Andrew Sentance, a former member of the Bank’s monetary policy committee, reckons it will reach as high as five per cent.
Bridget Phillipson, Labour’s shadow chief secretary to the Treasury, said: “People are already feeling the effects of inflation, whether it’s at the supermarket, petrol pump or paying for home improvements.
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“Whether the inflation is temporary or otherwise, families should not have to pay the price for the Government’s lack of plan for HGV drivers and the costly red tape following their deal with the European Union.”
Meanwhile, rail fares in England and Wales are on track to go up by 4.8 per cent in January — the steepest rise in a decade — unless ministers act to halt the huge price increases to encourage commuters back on to trains.
By Andrew Sentance
Economist and a former policy expert at the Bank of England.
ON the surface it looks as if all is well on the inflation front following the fall from 2.5 to two per cent. Sadly, this is not the case.
A whole range of other economic indicators are telling us that inflation is set to rise in the next few months — possibly quite sharply.
Many independent economists like myself think it will go to five per cent or above.