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'Years' of high inflation ahead

Tuesday May 21st 2013

Householders should prepare themselves for years of high inflation as the cost of living shows no signs of easing, a leading economic forecaster has warned.

The Ernst & Young Item Club estimates that stubbornly high inflation has already knocked almost 3% off UK growth in the past three years. It expects inflation to peak over the summer and said it is unlikely that it will fall below 2.5% at any point in the next four years.

Last week the Bank of England warned that inflation is not expected to fall below its 2% target until late 2015 despite the economy showing signs of a recovery.

Even though household budgets are continuing to be squeezed, the Item Club said the Bank was right to allow inflation to overshoot the target and keep interest rates at a record 0.5% low.

Item's senior economic adviser Carl Astorri said the alternative would have seen interest rates rise by 3.5% in 2011, setting the recovery back further and making unemployment figures even higher.

Copyright Press Association 2013

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