UK inflation ‘could hit 22% next year’ as recession looms

UK inflation could hit 22% next year if soaring petrol prices do not subside, US investment bank Goldman Sachs has warned.

Last week, UK energy regulator Ofgem confirmed the price cap would rise to over £3,500 in October, with charities warning that millions of households would be pushed into energy poverty unless the government does not. intervene urgently.

Goldman Sachs economists wrote in a research note on Monday: “In a scenario where gas prices remain high at current levels, we expect the price cap to increase by more than 80% in January (from 19 % assumed in our baseline scenario).

“(That) would imply headline inflation peaking at 22.4%, well above our benchmark forecast of 14.8%.”

Goldman Sachs said it expects a recession to start in the fourth quarter, with the economy expected to contract 0.6% in 2023 as a whole.

The Bank of England is expected to raise interest rates by 50 basis points to 2.25% next month, Goldman said, adding that it saw upside risks in its forecast for further 25 basis point hikes. basis at subsequent political meetings.

The bank’s forecast comes after Citi economists said last week that consumer price inflation is expected to peak at 18.6% in January.

Last week British Gas announced it would donate 10% of its profits for the duration of the energy crisis to fund support for households struggling with rising energy bills.

The move follows a call for action from the energy company to ‘protect businesses, livelihoods and jobs’ in a letter to Boris Johnson, Chancellor Nadhim Zahawi and the two Tory leadership candidates .

Centrica, the parent company of British Gas Energy, has urged politicians to introduce Covid-style subsidies for businesses, a temporary reduction in VAT to 5% and give Ofgem more power to tighten regulation.

Tory leadership hopeful Rishi Sunak has said he will spend around £5billion to support the most vulnerable through the benefit system, while Liz Truss has made more than £30billion from tax cuts its flagship policy.

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