When the Treasury tried to work out the impact of a Leave vote in its much-panned report ahead of the referendum, it notoriously forecast a recession that simply didn't happen.

It got it horrendously, embarrassingly wrong: in fact the economy has grown even faster after the vote, as consumers kept on spending.

But there were two forecasts they got right.

First, they said that the pound would fall sharply, by around 12-15%.

Second, that this would push up inflation - the annual rate at which prices across the economy are changing - by 2.3%-2.7% more than if the UK had voted to stay.


The pound did indeed depreciate considerably after the Leave vote - in fact, based on the latest figures, it is 13% weaker than before the vote (against a basket of currencies).

And now the Office for National Statistics has reported that inflation - as measured by the consumer price index - has risen to 2.3%.

:: Household squeeze as inflation reaches three-and-a-half year high

This is the highest rate of change since late 2013, and is also the first time the measure has been above the Bank of England's target in that period.

There is little doubt that this was caused primarily by the fall in the pound (which in turn was caused by the referendum vote - indeed, it plummeted on referendum night itself).

Because the UK relies so heavily on imported goods (we have a trade deficit, remember?) it is particularly sensitive to changes in the currency.

When the pound rises, prices fall; and when the pound falls, prices rise.

That's what happened in 2008 when the pound fell amid the financial crisis; that ultimately pushed up inflation to around 5%. It's what's happening now.

Indeed, a glance at the costs manufacturers are paying for imported materials underlines that story.

In the three years up until June 2016, those prices were falling on a year-on-year basis.

They suddenly started to rise following the referendum.

Over the past three months the annual rate hit 18.8% - the highest level since 2008.

That would imply inflation has even further to rise.

Indeed, as we reported a couple of weeks ago, timely measures of prices (collected from the internet) suggest prices might already be rising by more than 3%.

Now, on the one hand, inflation at or around target is no cause for panic. Indeed, a little bit of inflation is actually quite a good thing.

But the concern is that, as happened back in 2008, rising prices won't be matched by rising wages.

In fact, according to the ONS, wage inflation dropped down to 2.3% in the three months to January (2.2% when you include bonuses).

When inflation rises faster than earnings, that means that across the economy we are facing a fall in living standards.

Such things are surprisingly rare.

Indeed, the squeeze we saw during the crisis was the biggest and longest since the Victorian era.

And in a sense, much of the frustration many people have felt in recent years has owed itself to that: their wages simply not keeping pace with the cost of living.

So the big worry is that Brexit looks like causing precisely the same thing all over again.

Indeed, if the most recent figures are anything to go by, real wages are probably already falling.

Now, on the bright side, there is less reason to suspect that this time around companies will keep wages low for a long period of time.

Then again, such predictions are a mug's game.

What we know is that right now prices are rising at around the same rate as wages, and that prices are almost certainly heading higher. A short-term squeeze is almost inevitable.

Some will dispute whether this is really down to the referendum, and indeed there are plenty of things one can quibble about in economics (I, for one, thought those predictions of economic apocalypse ahead of the vote were way over the top).

However, in this case the evidence seems pretty straightforward: the Brexit effect is now taking hold.

So when you see prices rising in the shops, or online, or in the petrol forecourt, there's your explanation: in large part it's down to the referendum vote last year.

For some that will be a small price to pay for our prospective independence from the EU.

As the impact takes its toll over the coming months, others might take a different view.