4% Inflation Prediction
Published / Last Updated on 17/06/2008
4% Inflation Prediction
New Star chief economist Simon Ward says inflation could reach 4 per cent this year if energy prices continue to rise, ending hopes of early base rate cuts. Ward previously forecast that inflation would reach 3.1 per cent in July, peaking at 3.5 per cent in September and remaining above 3 per cent until February 2009. He says a 4 per cent peak now looks plausible if retail energy prices increase by 20 per cent.
Our view
Inflation did hit 3.1% this month as predicted and we also expect more of the same for the rest of the year.
Following recent bad news such as big rises in factory gate prices and import prices and a warning from energy supplier Centrica that prices will rise have put to bed any hopes of interest rate cuts between now and the end of the summer as the Bank of England will want to keep control of inflation.
We suggest much of the instability will move on as a new fuel pipeline comes on line in September and liquidity in the property market will improve.
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