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If inflation remained within the Bank of England’s two percent target, taxypayers would still have to fork out an eye-water £39.9billion to service the country’s national debt, according to the Office for Budget Responsibility (OBR). But if the retail price index (RPI) runs to the predicted six percent – this would add £5.4billion to the bill.
Economists at Citi are predicting the outcome which is a full percentage point higher than the Office for Budget Responsibility forecast a month ago.
Much of the Government’s debt is in bonds liked to RPI – so any rise will directly affect Down Steets’ coffers.
The hike in inflation has largely been blamed on a huge rise in the wholesale price of gas – which has shot up 250 percent since January.
This has combined with the global supply chain crisis and rapidly rising wages in some sectors where firms have struggled to recruit enough workers.
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This could continue the pressure on ordinary households – which in turn could hurt growth.
Economist Paul Mortimer-Lee told the Guardian: “A squeeze on real incomes for workers and those on Universal Credit will slow economic growth next year, with the adverse effects on consumption offset by lower savings.
“Meanwhile, inflation is set to peak around five percent, forcing a reluctant Bank of England to raise interest rates, albeit grudgingly.
“Unemployment should settle in a narrow range around 4 ¼ percent. The risks are skewed to the upside on inflation and the downside on growth.”
Meanwhile, others blamed the problem partially on Brexit for restricting the pool of workers that UK firms have access to.
Jagjit Chadha, director of the National Institute of Economic and Social Research, also claimed that short-run supply problems faced by the UK will persist and are likely to be exacerbated by Brexit.
He said: “This is because our exit from the European Union has acted to reduce the pool of labour, contributed to lower levels of firm investment than might otherwise have been the case, and led to some contraction in the size of our traded sector.”
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