Consumer price inflation is expected to rise throughout 2017 due to the sharp depreciation of sterling as a result of the referendum outcome.
NIESR forecasts inflation to average 3.3% this year and 2.9% in 2018, returning back to the Bank of England’s mandated target in 2020.
The Institute now expects GDP growth to slow from 2% in 2016 to 1.7% in 2017 and 1.9% in 2018.
In the Autumn Statement the government announced a new fiscal charter, scrapping the previous target of reaching an absolute surplus by 2020–21, replacing it with an overall objective for government to “return the balance back to surplus at the earliest date in the next parliament” and a target to reduce cyclically-adjusted public sector net borrowing to below 2% of GDP by 2020–21.
NIESR says it expects this target "to be met with relative ease".
Simon Kirby, Head of Macroeconomic Modelling and Forecasting at NIESR, said: “Robust consumer spending growth was behind the economic momentum of 2016. Consumers face significant headwinds this year and next. Most notably, the pass through from the recent depreciation of sterling to consumer prices is expected to erode the purchasing power of households this year and next.”
