Inflation may remain above the Bank of England’s two per cent target for the next few years as price increases have increasingly spilled over into the wider economy, a think tank warned today.

According to forecasts from the National Institute of Economic and Social Research (NIESR), inflation is forecast to fall to 5.2 per cent by the end of this year, before falling to 3.9 per cent by the end of 2024.

Beyond next year, the think tank forecasts inflation to fall to 2.3 per cent in 2025, with it remaining marginally above the two per cent target until at least 2027.

NIESR also warned that there were “significant risks” to its forecasts which could result in inflation being higher than anticipated.

The forecasts come despite the latest inflation figures showing a faster than expected drop in inflation. In June, inflation increased 7.9 per cent on last year, the slowest rate since March last year.

“While headline inflation eased by more than expected in June, it remains the case that we have yet to see a significant movement in underlying inflationary pressures in the economy,” NIESR said.

NIESR pointed out that although high energy costs have now “fallen out” of the CPI index, other components – such as food and services – were now driving price increases.

“As a result of the original inflation shock, inflationary pressures have permeated indirectly to other areas of the economy,” the report said, which would likely force the Bank of England to tighten monetary policy further.

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