Inflation expected to lose steam, but households and businesses not out of the woods just yet

Responding to official inflation figures, showing the Consumer Price Index rose to 3.1% in November, Tej Parikh, Senior Economist at the Institute of Directors said:

“While inflation has breached 3.0%, it appears to be near its peak – and losing steam. But households and businesses are not out of the woods just yet.

“Official figures show that the annual increase in price levels reached its highest since March 2012, though forecasts continue to point to a fall back in the inflation rate over the coming year. Indeed, while the increase in November’s inflation rate was driven by food, transport, and recreational good costs, the Bank of England expects the inflationary effect of the weaker currency, which has been driving higher prices this year, to now wane.

“That process will be gradual, however, and so inflation will remain elevated. Households will continue to be caught between weak wages and high prices over the Christmas period and the New Year. And, restrained consumer activity will in turn put pressure on business revenues, as firms also face the dual challenges of attracting workers amidst a tightening labour market and high costs.

“This means that the Bank ought to keep interest rates low to support demand. It also puts pressure on the Government to ensure that money yet to be allocated from announcements to boost business productivity, in the Budget and the Industrial Strategy, makes its way to businesses as soon as possible. What’s likely to be another long year for workers will only be compounded if firms are not supported to create additional capacity to raise wages.”