"Sterling’s devaluation will push inflation up to 2.6% temporarily next year. With average earnings still surprisingly subdued, this will slow the consumer. In the meantime, many firms have put investment and recruitment on hold while they assess the likely impact of the Article 50 negotiations," the group said in the Autumn Forecast.
The report — which uses the Treasury model of the UK economy — predicts that Britain's economy will expand by 1.9 percent this year, but warns that this will slow to 0.8 percent in 2017.
The report stressed that beyond 2017, the situation would be heavily influenced by the outcomes of the United Kingdom's negotiations with the European Union on the exit and any potential trading arrangements.
On June 23, the nationwide referendum on EU membership was held in the United Kingdom, in which 51.9 percent of voters said the country should leave the bloc. UK Prime Minister Theresa May said she intends to trigger Article 50 of the Lisbon Treaty and, thus, begin the process of leaving the European Union by late March 2017.