Rising raw material costs, the increase in the energy price cap, the reversal of the hospitality VAT cut and upward pressure on energy and commodity prices from the impact of Russia’s invasion of Ukraine are expected to lift CPI inflation to a peak of 8% in Q2 2022. If realised this would be the highest rate since July 1991.
The impact of the invasion and rising raw material costs are also projected to keep UK inflation higher for longer. CPI inflation is expected to fall back to the Bank of England’s 2% target in Q4 2024, over a year later than the previous forecast of Q2 2023.
UK interest rates are projected to double over the course of this year, from 0.5% to 1%. However, with the current inflationary spike mostly driven by global factors, higher interest rates are expected do little to curb further increases in inflation.
