BCC: Inflation a key risk to UK growth prospects

“With inflation now surpassing the Bank of England’s 2% target for the first time since 2013, there is further confirmation that UK price growth is firmly on an upward trajectory.

“The decline in the value of Sterling, together with rising oil and other commodity prices, is likely to maintain the upward pressure on consumer prices in the coming months. We currently forecast that inflation will remain persistently above the Bank of England’s 2% target over the near term, peaking at close to 3% in the second half of 2018. 

“Rising inflation is a key risk to the UK’s growth prospects. Businesses continue to report that the rising cost of raw materials are squeezing margins, forcing many firms to raise their prices. Higher inflation is also likely to materially squeeze consumer spending in the coming months as price growth increasingly outpaces earnings growth.

“While government has little direct influence on currency movements or global commodity prices, it must do more to ease the burden of up-front costs and taxes faced by businesses, which is weighing heavily on investment decisions and growth.

On the public finances, Suren Thiru added:

“The latest public finances data show that the government remains on course to meet the Office for Budget Responsibilities forecast for 2016/17 made in the Spring Budget, with public borrowing declining again in February. However, if UK economic growth becomes more subdued as we expect, the UK is likely to face an uphill struggle to achieve meaningful deficit reduction in the coming years, as the government’s ability to generate tax receipts comes under greater pressure.”