Bank Rate to remain at 0.25% despite 3.4% inflation peak: NIESR

The Institute projects consumer price inflation to peak at 3.4% in the final quarter of this year, before gradually returning back towards the Bank of England’s 2% target.

After mid-2019, the MP is expected to gradually righten Bank Rate by around 50 basis points per annum.

Overall NIESR forecasts GDP growth of 1.7% and 1.9% this year and next, unchanged from its last review.

This is partly due to the Spring Budget which contained "few significant spending or taxation announcements", and thus NIESR's fiscal forecast remains largely unchanged from its February Review.

Additionally, markets have viewed the General Election in a positive light with election polls suggesting a continued Conservative government, strengthening the position of the Prime Minister as the country embarks on a negotiated withdrawal from the EU.

NIESR projects public sector net borrowing to decline from £66.2 billion (3.2% of GDP) in fiscal year 2017–18 to just £3.6 billion (0.2% of GDP) in 2021–22. The current fiscal rule requires the public finances to be returned to balance within the next Parliament, but the snap election call has brought forward the end of the next Parliament by three years.

Simon Kirby, Head of Macroeconomic Modelling and Forecasting at NIESR said: “GDP growth over the next couple of years will be subdued, growing at less than the economy's long-run potential rate of 2% per annum, but households will feel the pinch from rising consumer price inflation. The rate of inflation is expected to rise from 2.3% per annum in March to almost 3½% by the end of 2017. By 2018 we expect consumer spending growth to have effectively stalled."