Consensus of economic forecasts shows inflation is back, says chancellor Philip Hammond
Chancellor Philip Hammond has declared: "It's clear that inflation is back."
Speaking on ITV's Peston on Sunday, Hammond said: "We have to wait and see what inflation figures look like when we get the OBR's report on Wednesday, but I think looking at the consensus of forecasts, it's clear that inflation is back."
"That is hopefully a temporary phenomenon as the effect of sterling's decline feeds through the economy," he added.
The chancellor said a consensus of economic forecasters had suggested the combined effects of slowing business investment and higher inflation caused by the decline in sterling's value "will have an effect on the economy next year, slowing down growth a bit".
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According to the National Institute for Economic and Social Research (NIESR), UK inflation will rise from 0.7 per cent to four per cent by the end of 2017. Its forecast says inflation will peak in the latter half of 2017 with a weak sterling making imports more expensive and reducing consumer spending power.
The rise in prices is likely to "accelerate rapidly" during 2017, and the four per cent figure is a steep jump from the three per cent NIESR had predicted in August.
Earlier this month, the Bank of England kept interest rates flat, revealing ramped-up forecasts on inflation and growth.
The forecasts were upped largely due to the depreciation of sterling. The BoE said inflation is expected to hit 1.3 per cent this year.
Hammond also discussed the uncertainty lingering in the wake of the Brexit vote as the government remains tight-lipped on its negotiation plans with the European Union.
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He said businesses "will face uncertainty for the next couple of years" and "there's no point crying over that". Instead, the chancellor said, everyone needs to "get on with it" as the government develops a plan.
As the government was yet to trigger Article 50, Hammond said he thought it unlikely there’d be clarity on issues of how Britain negotiates its transition from the European Union before then.
“Businesses like certainty and that’s one of the challenges we face,” he said, acknowledging ongoing calls from firms for more clarity on what plans the government is developing.