UK Inflation Next Year May Hit Highest Level In 3 Decades

UK inflation may peak at close to 5% next year, potentially the highest rate seen in the country for three decades, the Office for Budget Responsibility (OBR) said Wednesday.

Consumer price index (CPI) inflation is expected to come at 4.4% in the second quarter of 2022, 2.6 percentage points higher than the March 2021 forecast, the OBR said its economic and fiscal outlook report.

Inflation in the UK reached 3.1% in September, said the OBR, the independent forecast and analysis providing public body funded by the UK Treasury.

"The increase mainly reflects higher utility prices, with the Ofgem energy price cap having increased by 12% in October," the report said, referring to the Office of Gas and Electricity Markets.

"The near-term spike in inflation next year is expected to be relatively short lived, with inflation returning to the 2% target in 2024, as energy prices stabilize, supply bottlenecks ease, and a modest tightening in monetary policy counteracts the extra stimulus from the fiscal package," it added.

The OBR emphasized that supply bottlenecks in the UK have been intensified by changes in the migration and trading regimes following Brexit.

"Energy prices have soared, labor shortages have emerged in some occupations, and there have been blockages in some supply chains," the report said. "These can be expected to hold back output growth in the coming quarters, while raising prices and putting pressure on wages."

​​​​​​​The OBR said the rise in inflation also reflects increases in global commodity prices, which have especially raised fuel prices.

"In addition, bottlenecks have emerged in several international product markets and there have been signs of shortages in some domestic markets too, adding to inflation pressures," it added. -