The UK economy will grow 2% in 2016 before slowing to 1.4% in 2017, according to the National Institute of Economic and Social Research (NIESR).
At the same time, consumer price inflation will accelerate, peaking at around 4% in the second half of 2017 and making an impact on real disposable income. The think-tank expects sterling to remain at around $1.22 and €1.11 this year and next.
The study highlights “substantial impending inflationary pressure”, much of which will be driven by the dramatic fall in sterling. As this depreciation is passed through to consumer prices, the NIESR expects CPI inflation to “accelerate rapidly”, reaching around 4% in late 2017 and only returning to the Bank of England’s 2% target in 2020.