More inflationary pressures could be looming on horizon, economists warn

Julian Harris
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INFLATION is likely to dip next year but only temporarily, with further price hikes set to pile more misery on savers and shoppers, a prominent group of economists will warn today.

Strong price pressures will bite again once the recovery finally gears up, the Ernst & Young Item Club says.

Impending domestically-generated inflation renders the Bank of England’s two per cent consumer price index (CPI) target “unsustainable in the medium term”, Item argues.

CPI has been above two per cent for 22 consecutive months, spiking to an eye-watering 5.2 per cent in September. Inflation figures for October are released next week.

“Our analysis suggests the rise in margins will hold back the recovery in real wages,” the report states. “This pressure on the UK’s workforce could last much longer than conventional models of the economy suggest. Consumers need to enjoy next year’s respite as much as they can.”

The Item Club wants to see the Bank of England “relax” its two per cent CPI target.