UK Inflation, December 2016 - PwC comments
Published at 10:13 AM on 13 December 2016
Commenting on the latest UK inflation figures, Andrew Sentance, senior economic adviser at PwC, said:
"Inflation is picking up as expected - to its highest level for over two years. Prices in the shops and on the garage forecourt are starting to reflect the big drop in sterling since the EU referendum result. Clothing prices have risen by over 4% since June and motor fuel prices are 7.4% up on a year ago.
"There is more inflation coming through the pipeline. The prices of UK manufactures are already 2.3% up on a year ago and the cost of raw materials, energy and other inputs into the manufacturing process are nearly 13% higher than a year ago. We should therefore expect inflation to rise to close to 3% by the end of next year, which will squeeze consumer spending and slow economic growth. We are leaving behind the very favourable world of near-zero inflation which has benefited consumers over the past couple of years.
"The Bank of England MPC has made it clear that it is not planning to react to this surge in inflation by raising interest rates. But further rises in US interest rates this month and next year could cause a reassessment as we move through 2017 and 2018. Much will depend on how business investment is affected by Brexit uncertainty - which is the other major factor expected to dampen UK growth next year."
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