Cost of living

Inflation ‘to hit 18.6%’ in January, says Citi

Inflation is eroding spending power

Inflation could rocket to 18.6% by January, its highest level in half a century, according to a new forecast from investment bank Citi.

It said soaring wholesale gas prices is pushing inflation into the “stratosphere”, with the energy price cap expected to increase from £1,971 to £4,567 in January and £5,816 in April.

The forecast means that the consumer price index (CPI) inflation figure, which was at 10.1% in July according to the Office for National Statistics (ONS), will rise significantly at the beginning of next year.

The last time CPI inflation was in double digits was in February 1982, when it reached 10.2%, and the last time it was close to 18% was in 1979.

“We now expect CPI inflation to peak at over 18% in January,” Citi told the FT.

The Bank of England, which this month raised interest rates by 0.5 percentage points to 1.75% and warned that the UK would enter a recession in the final months of 2022, expects inflation to hit 13% next year.

Benjamin Nabarro, chief UK economist at Citi, said in a note to client, titled Monthly Inflation Profiles, Entering the Stratosphere, that the bank had updated its latest estimate for consumer price inflation following further increases in UK gas and electricity prices of 25% and 7% respectively last week.

He said the measures suggested by Liz Truss, the frontrunner to become prime minister, will have limited impact in offsetting inflation.

The Citi forecast is at the higher end of a range made by economists. Goldman Sachs, the investment bank, EY, the professional services group, and the Resolution Foundation think tank all expect that the rise in the energy price cap could push inflation to 15% at the start of next year.

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