The Bank of England must raise the interest rate to 2.5% next year to curb inflation, according to a think-tank.
The National Institute of Economic and Social Research said the bank was overestimating how far demand headwinds would curb inflation.
Deputy director Stephen Millard said: “We expect inflation to come down fairly quickly, and so does the bank, but on higher interest rates than are in the BoE forecasts.”
Last week the bank announced an increase to its base interest rate of 0.25 percentage points, lifting it to 1%, after inflation hit a 30-year high of 7% in March. The bank has predicted inflation will rise to 10% later this year.
