Citi projects UK inflation to breach 18% in January as energy prices skyrocket

LONDON — U.K. inflation is on course to exceed 18% in January as the country’s energy price cap enters the stratosphere, Citi economists are projecting.

In a research note dated Sunday, the U.S. banking giant updated its forecasts for the consumer price index and retail price index to 18% and 21%, respectively, in the first quarter of 2023. This is based on the assumption of a £300 policy offset applied to household energy bills from October through to 2024.

Energy regulator Ofgem will this week announce the scale of the next price cap increase from Oct. 1, and Citi expects a rise to £3,717 per year ($4,389) from the current £1,971 for an average household. The price cap essentially limits the amount a supplier can charge for their tariffs, but this limit has surged higher recently due to the rise in wholesale prices — meaning Brits have seen bills skyrocket

“We expect further increases to £4,567 in January and then £5,816 in April. The risks here remain skewed to the upside,” Nabarro said.

The key question now is how government policy might impact both inflation and the real economy after a new prime minister takes office on Sept. 5. Comments so far from Conservative leadership favorite Liz Truss point to only a “limited offset” for headline inflation, he suggested.

Citi now expects a further 125 basis points of monetary tightening at the coming three meetings of the Bank’s Monetary Policy Committee. U.K. inflation hit 10.1% annually in July and is increasingly expected to exceed the MPC’s latest projections.



Article URL :