Inflation in the United Kingdom will soar to ‘astronomical’ levels over the next year, a leading British think tank has warned, saying such massive inflation will force the Bank of England to raise interest rates higher and for a longer period than previously expected.
In a report on Wednesday, the National Institute of Economic and Social Research (NIESR) also forecast a long recession that would last into 2023 and hammer millions of the most vulnerable households, particularly in the most deprived areas of the UK.
The think tank warned the deteriorating cost-of-living crisis would devour savings of households unless London boosted support for households immediately.
There would be “no respite” for British households and businesses from “astronomical inflation” in the short term and “we will need interest rates up at the 3 percent mark if we are to bring it down,” said Stephen Millard, NIESR’s deputy director.
According to NIESR, hikes in gas prices and the increasing cost of food would send inflation to 11 percent before the end of the year while the retail prices index (RPI), which is used to set rail fares and student loans repayments, is expected to reach 17.7 percent.
More than a million households would be forced to choose between heating their homes and purchasing sufficient food, the forecast said, as consumer price inflation hit a 40-year high of 9.4 percent in June.
“It needs urgent and sustained, and credible, intervention by successive governments. Unfortunately, it’s not clear to me that we have the political institutions to deliver that,” said NIESR Director Jagjit Chadha told a press conference.
The think tank said the number of British households with no savings was set to double to 5.3 million, or one in five, by 2024.
Around 1.2 million households would face destitution in 2023, it warned, adding that the food and energy bills of these households would exceed what was left of their income after paying for housing and tax.
“These are devastating numbers,” said NIESR research lead Arnab Bhattacharjee.
Officials of the Bank of England are set to give their verdict on the state of the economy on Thursday when the central bank’s monetary policy committee (MPC) will make its latest decision on interest rates and publish its quarterly review.