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UK News: UK inflation could fall below 2% this year

According to new financial industry forecasts, Britain’s inflation rate could fall below 2% by the year’s end, giving the chancellor a boost to the public finances before a general election in 2024.

Predictions that falling gas prices will accelerate the decline this year in the consumer prices index (CPI) from last month’s level of 10.1% could also support a recovery in household living standards and persuade the Bank of England to cut interest rates earlier than expected.

Investment bank Citi said the CPI would likely fall to 2.3% in November, below the Bank of England’s estimate of a 4% inflation rate in the year’s fourth quarter. Fund manager Investec said it could slide to 1.6% by December.

Inflation has remained in double digits since last July – barring a brief drop to 9.9% in August – triggering a wave of pay demands to compensate workers for losing spending power.

Most of the increase was due to rising energy and food prices, which Citi’s chief UK economist, Benjamin Nabarro, said were now falling faster than had been expected at the beginning of the year.

Interest rate rises by the Bank of England are also expected to dampen consumer spending, further reducing the pressure on prices.

A slide in inflation to 2% would allow the prime minister to more than fulfil his pledge to halve inflation by the end of the year and make it easier to resolve a wave of public sector strikes over pay.

“The faster reduction in inflation [this year] primarily reflects an easing in pricing pressures, particularly in energy,” Nabarro said, adding that inflation could be as low as 5% by July.

Philip Shaw, the chief UK economist at Investec, has forecast a fall in inflation to 1.6% by the fourth quarter, driven by falling energy prices and a squeeze from higher lending rates for 1.5m households that must remortgage this year.

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