UK inflation will not reach the government's 2 percent target for the third year in 2012, according to research by a leading thinktank - and will not hit its goal until another three years after that.

The Centre for Economic and Business Research (CEBR) says high oil and commodity prices will keep adding to increases in the cost of living in Britain this year and that inflation will only slow in the fourth quarter of 2012 to 2.7 percent. The economy, however, will expand at a faster-than-expected rate, the CEBR said.

"Inflation used to be driven by labour costs. Now it is driven by high and rising demand for oil and other primary commodities from the emerging economies in the Far East," said Douglas McWilliams, one of the report's authors and chief executive of CEBR. "So it looks as if inflation above target is a price we may have to pay for some time."

Brent crude oil is hovering around $120 (£74.5) a barrel and is set to rise higher, while the UN reports soaring food prices for dietary staples.

The CEBR revised up its forecast for growth in 2012 from -0.4% to +0.3%.

However medium term growth is forecast to average just over 1 percent a year until 2016.

Unemployment is forecast by CEBR to rise to around 3m and stay there for at least three years.

The Bank of England had forecast that inflation would fall rapidly across 2012, before hitting its 2 percent target - or even below it - by the end of the year.

A small rise in inflation in March ended a five-month decline.

UK inflation (CPI) came in at 3.5 percent, a rise on February's 3.4 percent.

The Bank has been pursuing a quantitative easing programme, called the asset purchase facility, which sees it buy up high quality assets, such as gilts, in order to improve market liquidity.

Its programme is now valued at £325bn, after two increases from the original target of £200bn when this round of QE was started in January 2009.

This target is up for review when the programme ends in May and the Bank's rate-setting Monetary Policy Committee (MPC), which controls the QE programme, is expected to hold off of any expansion, given the jitters over inflation forecasts.

"The MPC has been dealt the worst possible hand of cards. High inflation and sluggish growth on a persistent basis mean that almost any decision the Committee makes will be wrong from at least one point of view," Scott Corfe, CEBR senior economist and main author of the report, said.

"They will probably hold base rates until 2014 at least, and hold back on further QE. But even that may not be enough to keep inflation near target or achieve economic growth at a reasonable rate."

Interest rates have been held for 37 months by the MPC at their record-low of 0.5 percent.

Steepest Drop in Household Finances for Three Months

Meanwhile the financial data company Markit's latest Household Finance Index saw its steepest fall in three months, amid inflation worries and lower pay.

The index figure dropped to 37 in April, from 37.8 the previous month.

Of the households surveyed for the index, 33 percent reported worsening household finances compared to just 7 percent who saw improvements.

There was also a substantial fall in year-ahead financial prospects, with 47 percent expecting things to get worse and just 25 percent anticipating better times.

This took the year-ahead index figure down to 39.2, from 42 in March.

"UK households faced an even greater uphill challenge to maintain their living standards in April as squeezed disposable incomes meant finances deteriorated at the fastest pace for three months," Tim Moore, senior economist at Markit, said.

"Higher debt levels and a renewed upturn in inflation expectations were the main setbacks in April, which in turn brought the outlook for household finances to its lowest in 2012 so far.

"Job insecurities were the least prevalent for over two years, but this failed to translate into either improved spending patterns or better household confidence.

"Instead, households reported falling incomes and sharply increased living costs, which in turn caused a substantial drop in their appetite for major purchases."