The escalating rate will tighten the squeeze on consumers already grappling with a worsening cost of living problem and increase the pressure on the central bank to take more decisive action to rein in spiraling prices.
A global investment bank forecasts that UK inflation will surpass 18% in January, the highest level in more than four decades and nine times the Bank of England’s target, due to soaring wholesale gas prices.
Citi has predicted that the retail energy price cap will increase to £4,567 in January and then to £5,816 in April, compared to the current level of £1,970 per year.
The escalating cost of living crisis will be exacerbated by soaring inflation, increasing the pressure on the central bank to take more decisive action to rein in spiraling prices.
The last time consumer price inflation exceeded 18% was in 1976, according to official data.
The aim for the Bank of England is 2%.
On Friday, the energy watchdog Ofgem will disclose the energy price cap for the period between October and January, which most analysts anticipate would increase to more than £3,500 for the average home, an almost 80% increase from current levels.
The new inflation forecast, according to Citi economist Benjamin Nabarro, accounts for last week’s 25% increase in wholesale gas prices and a 7% increase in wholesale electricity prices.
However, the situation is likely to have deteriorated further as a result of a sharp increase in gas prices on Monday ahead of the expected suspension of the Russian-supplied Nord Stream pipeline.
As a result of the invasion of Ukraine and the ensuing tensions with the Kremlin, there is concern that the water will not be restored.
The Office for National Statistics reported last week that inflation reached a 40-year high of 10.1% in the 12 months leading up to July.
In a letter to clients, Mr. Nabarro stated, “The question now is what policy may do to mitigate the impact on inflation and the actual economy.”
The note stated that the Bank of England’s Monetary Policy Committee was likely to decide that the risks of more persistent inflation have increased as a result of the fact that inflation is now expected to peak much higher than the 13% prediction.
Mr. Nabarro stated, “This necessitates bringing rates into the restriction zone expeditiously.”
He continued, “Should signals of more embedded inflation emerge, we believe a Bank Rate of 6-7% will be necessary to rein in inflation dynamics.
“However, for the time being, we continue to believe that evidence for such effects is limited and that increases in unemployment are more likely to permit the MPC to halt around the turn of the year.”
The cost of living crisis has become a key battleground between the two candidates for the Conservative party’s leadership, with the two camps trading blows over the most effective means of addressing the crisis.
In the meantime, the first Australian gas cargo to Europe in more than a half-decade is scheduled to arrive in England as Europe experiences gas shortages.
The gas tanker Attalos is scheduled to arrive in Kent with a load of liquefied natural gas.
Some of the gas is likely to be used immediately in the United Kingdom, but the majority will likely go to Europe.
Due to the vast distances involved, it is uncommon for Australian gas to reach Europe, with the majority heading to Asia.
But Europe’s current severe gas crisis has accelerated the need for additional sources of fossil fuel.
