Higher inflation is to wipe out 40% of the planned growth in public sector funding over the next three years leading to a £44bn shortfall, according to a study by the Institute for Fiscal Studies (IFS).

While original forecasts in last October’s Spending Review anticipated public sector inflation at 2.3% it has now risen to 3.7%. The average real terms growth rate in funding for the next three years has therefore dropped from the planned 3.3% to 1.9%.