“Over the next six months it is likely that we will continue to see these trends push inflation higher in the UK with the oil price hitting its low in January 2016. No doubt the general public has noticed the impact at the pump. However, over the long term, we have described future higher inflation levels as “trying to light a fire in a swamp” because it is difficult to see inflation moving significantly higher, when consumers are generally still unwilling to borrow and wage inflation remains relatively low.”
Global economist at Fidelity International Anna Stupyntska also anticipates that consumers will eventually bear the brunt of a weak pound pushing up the cost of imports and said consumer price inflation could rise by as much as 1% before peaking in 2017.
However, given the “somewhat rosier picture” of the current UK economy from the recent inflation numbers, she thinks the Bank of England is unlikely to do anything drastic in the impending September meeting.
“While the economy might well manage to avoid recession in the coming quarters, the bigger issue is the threat to productivity and growth from lower labour supply, depending on immigration policy, and from the loss of access to single market, entailing trade barriers. But this is a longer-term story,” she added.
