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Inflation will not drop as fast as anticipated

Published On 30 January 2007 at 16:39:31

Inflation will not drop as quickly as it originally anticipated, the National Institute of Economic and Social Research has admitted.

The group is now expecting inflation to shift down towards its target of two per cent this year, thanks to the interest rate hikes made recently by the Bank of England.

In line with the new outlook, the NIESR revised its GDP growth estimate for 2007 to 2.75 per cent.

A spokesperson for the NIESR commented: "With strong economic growth driven by a pick-up in domestic demand we now think that the economy is operating above capacity, albeit only marginally."

"Due to our projection of stronger growth and stronger than expected inflation outcomes for the final quarter of last year, we expect inflation to fall back to target less quickly than we anticipated three months ago at the time of our last forecast," the spokesperson added.

The bank of England has augmented interest rates three times since August. The rate now stands at 5.25, after the surprise third decision earlier this month.

It is expected that the slowdown in the US economy will also contribute to the UK economy's cooling.

 

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