Surging energy bills will drive UK inflation over 18% early next year — the highest peak in almost half a century — investment bank Citi has warned.

Citi has forecast that CPI inflation will hit 18.6% in January 2023, while the RPI inflation rate will hit 21%, due to extremely painful rises in energy bills that will push the cost of living into the “stratosphere”.

Citi predicts that the price cap on energy bills across Great Britain will rise to £3,717 in October (up from £1,971 today), and then jump to £4,567 in January and then £5,816 in April.

Our latest estimate, updated for the further 25% and 7% rally in UK gas and electricity prices last week, points to a further upside shift in UK inflation. Accounting for these developments, as well as updating our own weights for CPI/ RPI and honing our own accounting for curve backwardation, we now expect CPI inflation to peak at over 18% in January. RPI inflation, we think, will peak at over 20%.

The question now is what policy may do to offset the impact on both inflation and the real economy, Nabarro adds:

Earlier this month the Bank of England forecast that UK inflation will peak over 13% this autumn when the energy price cap is lifted.

Wholesale gas prices have continued to rise through August, as Vladimir Putin has ‘weaponised’ Russia’s energy supplies.

As flagged earlier, they’ve surged this morning as Gazprom prepares to shut down its Nord Stream 1 pipeline for three days at the end of this month.

The FT points out that if UK inflation hits 18%, that would be higher than the peak of inflation after the second Opec oil shock of 1979 when CPI reached 17.8%, according to estimates from the Office for National Statistics.

Source: The Guardian

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