Interest rates to stay at 0.25% until 2019 as living costs surge to 3.5%, says think-tank

Families will feel the squeeze on budgets as wage rises fail to keep pace with rocketing inflation, according to the National Institute of Economic and Social Research (NIESR).

As a result, consumer spending growth is to grind to a halt by the end of the year.

Rising prices as measured by the consumer prices index (CPI) will hit the highest level since early 2012 – before gradually easing back towards the bank’s two per cent target, forecast the group.

But interest rates will remain on hold at 0.25 per cent until mid-2019 as the Bank of England is expected to “look through” the jump in inflation.

Simon Kirby, head of macroeconomic modelling and forecasting at NIESR, said: “Households will feel the pinch from rising consumer price inflation.

“The rate of inflation is expected to rise from 2.3 per cent per annum in March to almost 3.5 per cent by the end of 2017.

“By 2018 we expect consumer spending growth to have effectively stalled.”

The slowdown in growth to 0.3 per cent seen in the first three months of 2017 was a sign that higher prices are already taking their toll, according to the think-tank.

NIESR said: “We expect consumer spending to remain weak throughout this year and next as rising inflation erodes the purchasing power of households.”

Forecasts for growth remain in line with earlier predictions, with expansion to ease back to 1.7 per cent over the whole of 2017 from 2 per cent in 2016, before rising to 1.9 per cent in 2018.

The forecasts come ahead of the Bank’s latest interest rate decision and quarterly inflation report on Thursday, which is expected to see it nudge down its growth outlook after the economy faltered in the first quarter.

Daily Express :: Personal Finance Feed

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