Expected rise in inflation puts spending at risk

e forecast to show a fresh rise in UK inflation and take the official Consumer Price Index (CPI) to 4%.

The Retail Price Index (RPI), which includes housing costs and more accurately reflects the impact of inflation on households, was expected to hit 5%.

The RPI was 4.8% in December and the CPI 3.7%, meaning incomes continue to fall further behind inflation and jeopardise discretionary spending.

The latest inflation figures will reflect the impact of January’s rise in VAT on top of global increases in food, petrol and commodity prices. Petrol prices alone rose more than 5% in the month.

The Bank of England will publish a revised inflation forecast on Wednesday, with economists now predicting the CPI is poised to increase further to 4.5% or 5%. Inflation has been above 3% for almost a year while wage inflation has remained at 2%.

Unemployment is also expected to rise again following an increase in December. A survey by the Chartered Institute of Personnel and Development (CIPD) and auditor KPMG, published on Monday, found two-thirds of public-sector organisations will cuts jobs in the first quarter of the year, by an average close to 13%.

The Centre for Economics and Business Research added to the bad news, forecasting a fall in UK house prices