Kevin Brown

According to Mr Brown, prices for consumers are expected to keep rising “sharply” in the coming months and could peak as high as 4% or 5%.

This is because the Bank of England (BoE) is unlikely to try to cool inflation with a rise in the base rate as this could threaten the economic recovery from the hit taken during the Covid pandemic.

The economy is growing, but not as strongly as UK officials had hoped. According to the Office for National Statistics (ONS), gross domestic product (GDP), the main measure of UK economic strength, grew 4.8% in the second quarter of 2021 as lockdowns lifted and people returned to pubs.

Mr Brown said that while the growth had been “strong” since the economy largely started to reopen in England and then Scotland, there was still some catching up to do, The Press and Journal reports. 

He said: “Despite five consecutive months of growth the UK economy still remains 4.4% lower than it was before the pandemic. The Bank of England was hoping to see a slightly greater reduction in the shortfall during Q2 so it seems unlikely they will take pre-emptive action to cool the economy.”

Mr Brown highlighted that inflation – the measure of rising prices – was showing “no signs of slowing”.

Last month, the ONS said the Consumer Price Index rose by 2.4% in the 12 months to June 2021, up from 2.1% in the 12 months to May. This was its highest level since August 2018 and above the BoE’s target of 2%, driven by prices rising on food, fuel, second-hand cars, clothing and footwear.

Mr Brown continued: “Inflation has been rising quickly off a low base since February and shows no signs of slowing. We expect consumer prices will continue to increase sharply over the coming months and could peak as high as 4% or 5%.

“This is going to put greater pressure on the Bank of England to raise interest rates but for now they will be conscious of playing their hand too early, as the economy still has some way to go to return to pre-pandemic levels.”

He added that people who borrow money or who have mortgages benefit from the low cost of paying for debt while interest rates remain at historically low levels, but others who are trying to save money for a house deposit or retirement do not.

Mr Brown concluded: “This is good news for homeowners and borrowers but households should be wary that the cost of living could be significantly higher by the end of the year.”