Rishi Sunak has made it one of his key pledges to halve inflation, but it is likely to be global commodity prices and a painful recession that bear down on prices rather than political measures, according to experts.
The Prime Minister made the inflation promise the first of five outlined in his first speech of the new year as he said the Government would “ease the cost of living and give people financial security”.
Inflation is indeed forecast to ease back sharply throughout 2023, although this has already been predicted by economists in recent weeks and is seen more as a result of factors in the wider UK and global economy than efforts by the Government.
Having hit an eye-watering 41-year high of 11.1% in October, inflation is already predicted to have passed its peak as official figures revealed it fell significantly to 10.7% in November.
It was the biggest drop for 16 months and came after big falls in the price of petrol and diesel, as well as second-hand cars.
Economists believe inflation will steadily fall back over 2023 and is likely to more than halve by the year end, due to the impact of the predicted recession in the UK and ongoing declines in commodity prices, such as oil and some food ingredients, given the pressures also being seen in the global economy.
It will also be as a result of the mammoth leaps in inflation seen last year dropping out of the inflation calculation.
Yael Selfin, chief economist at KPMG UK, believes inflation will fall to under 4% by the end of 2023, but is unlikely to reach the Bank of England’s 2% target until mid-2024.
She said: “Inflation is expected to have already peaked in October and to fall gradually over the coming months.
“The fall in the headline rate partly reflects the dropping out of price increases from the 12-month period that is used to calculate inflation, as well as potential falls in some commodity prices.”
She added: “The path of inflation remains uncertain, however, and there are risks to the outlook of both higher and lower inflation.
“Higher inflation could arise from a combination of further supply shocks and more persistent domestic price pressures, while more significant falls in the price of energy alongside other price reductions as the global economy slows could push inflation below the Bank of England’s 2% target.”
The Government’s support for energy bills has helped limit the soaring cost of living, given that there were fears inflation could hit more than 13% at one stage.
Yet it is a stretch for the Government to claim its measures will be the driving force behind CPI falling back this year.
Samuel Tombs, at Pantheon Macroeconomics, believes CPI will drop to around 8% in April and 3% by the end of 2023, dragged lower as he believes the UK will suffer the “deepest recession among advanced economies in 2023”.
For many, the cost of living will still feel painful this year, with prices of many essentials expected to remain high for some time as under-pressure firms are forced to pass on steep costs.