Inflation in the UK is expected to surpass three per cent in early 2025 in a cost of living blow to Britons, economists have warned.
The forecast from the National Institute of Economic and Social Research (NIESR) comes after the publication of the latest consumer price index (CPI) figures from the Office for National Statistics (ONS).
Inflation jumped from 1.7 per cent to 2.3 per cent in October 2024, exceeding the Bank of England’s desired two per cent target for cutting interest rates.
The ONS cited this hike as being a result of the recent increase in Ofgem’s energy price cap, which is limit suppliers can charge households on variable tariffs for gas and electricity.
This is a reversal of the recent trend of falling inflation and will likely be a concern for Prime Minister Sir Keir Starmer’s Government which has pledged to improve the economy coming out of the pandemic.
Notably, the persistent issue of inflation could spook the central bank from making further reductions to the base rate in the months ahead.
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Inflation rose last month and is expected to rise higher in 2025
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According to the NIESR, inflationary pressures stemming from the Autumn Budget and uncertainty over a second Trump presidency are likely to keep interest rates higher for longer.
As part of her fiscal statement, Chancellor confirmed expanded the liability thresholds for capital gains tax, inheritance tax and raised National Insurance contributions on employers.
Retailers have come out against the latter decision, even claimingt it will result in job losses and higher prices for consumers.
On top of this, President-elect Donald Trump has promised to impose universal tariffs of up to 20 per cent on all foreign imports coming into the US which could hit UK businesses financially down the line.
Monica George Michail, the NIESR’s associate economist, broke down why households should prepare for inflation-hiked prices well into 2025.
She explained: “While we think the Bank of England will continue to cut rates in 2025, the pace of rate cuts is expected to be slower than previously anticipated, and rates may stay elevated for longer.
“This outlook reflects forecasted inflationary pressures stemming from the recently announced budget, in addition to heightened global uncertainty, particularly surrounding the Trump presidency.”
For the last three years, families across the country have been with record high inflation with the CPI rate reaching 11.1 per cent in October 2022.
Paul Noble, the CEO of Chetwood Bank, reminded Britons that today’s inflation figures are to be expected regarding the circumstances.
He shared: “This latest inflation data is untimely, especially as we head into the festive season, but it’s not entirely unexpected with higher energy costs and price rises in the services sector. The key question is whether this is just a temporary blip following recent positive inflation news or the start of a new upward trend.
“However, it’s worth bearing in mind that inflation is still markedly lower than it was at the same point 12 months ago and the bank base rate is still above inflation. What’s more, there are strong opportunities in the savings market for those looking to make their money work harder over the festive period and into 2025.
“Nevertheless, today’s figures are also a timely reminder to the banking sector that banks must do everything they can to support consumers and help ease their worries over festive spending as we move towards one of the most expensive and financially testing times of the year.”
