UK inflation could hit 22% as energy prices soar, Goldman Sachs warns
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Goldman Sachs has said that the UK is likely to slip into a recession in the fourth quarter of 2023.
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LONDON – UK inflation could rise above 22% next year if energy prices continue to go up, US investment bank Goldman Sachs warned.
In a research note on Monday, Goldman said inflation could peak at 22.4% and gross domestic product could fall 3.4% if energy costs continue to rise at their current rate.
It comes after UK households were hit with an expected 80 per cent increase in their energy bills in the coming months, bringing the average annual household bill from £1,971 to 3,549. pounds ($4,197) and exacerbated the country’s existing cost of living crisis.
Britain’s energy regulator announced on Friday that it will raise its key limit on consumer energy bills from 1 October to catch up with the increase in wholesale gas prices, which have increased by 145% in the UK since the beginning of July.
Ofgem expects to recalculate its price cap again in three months. Still, Goldman says that if prices remain “consistently higher,” another 80 percent increase could be expected.
Goldman economists, led by Sven Jari Stehn, “In a scenario where gas prices remain elevated at current levels, we would expect the price ceiling to increase by more than 80% in January … meaning headline inflation peaked at 22.4%,” Goldman economists, led by Sven Jari Stehn, said in the note.
However, if energy prices stay moderate, peak UK inflation is likely to hit 14.8% in January, Goldman commodity strategists predict – much higher. Bank of England’s 13.3% forecast in the first day of this month.
The bank also thinks that the UK is likely to fall into a recession in the fourth quarter. The UK economy is forecast to contract by -0.3% year-on-year 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 deepening cost of living crisis to push the UK economy into recession by the end of the 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 breach 18% in January 2023.