UK inflation could top 22% as energy prices soar, Goldman Sachs warns

Goldman Sachs has said the UK is expected to fall into recession in the fourth quarter of 2023.

Richard Baker | In pictures | Getty Images

LONDON — UK inflation could top 22% next year if energy prices continue their upward spiral, US investment bank Goldman Sachs has warned.

In a research note dated Monday, Goldman said headline inflation could peak at 22.4% and gross domestic product could fall 3.4% if energy costs continue to rise at their peak. current pace.

It comes after UK households were hit by an expected 80% rise in their energy bills in the coming months, taking the average annual household bill to £3,549 ($4,197) from £1,971 and exacerbating the current cost of living crisis in the country.

Britain’s energy regulator said on Friday it would raise its main cap on consumer energy bills from October 1 to keep pace with rising wholesale gas prices, which have jumped 145% in the UK since early July.

Ofgem is expected to recalculate its price cap again in three months. However, Goldman said that if prices remained “consistently higher”, another 80% rise could be possible.

“In a scenario where gas prices remain high at current levels, we would expect the price cap to rise by more than 80% in January…which would imply headline inflation peaking at 22.4%,” they said. the Goldman economists, led by Sven Jari Stehn. said in the note.

If, however, energy prices slow, UK inflation will peak at 14.8% in January, Goldman commodity strategists have predicted – well above the 13.3% expected by the Bank of England earlier this month.

The bank also said the UK was likely to fall into recession in the fourth quarter. It forecast the UK economy to contract by -0.3% on a non-annualized basis in the fourth quarter of this year, followed by -0.4% and -0.3% in the first and second quarters of 2023, respectively.

“We now expect the worsening cost of living crisis to push the UK economy into recession later this year,” the note said.

Goldman’s outlook is the latest bleak forecast for the UK economy, with Citi predicting last week that UK inflation will top 18% in January 2023.

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