UK inflation set to hit 22%: Goldman Sachs in terrifying new forecast


UK inflation is set to rocket to 22%: Goldman Sachs in terrifying fresh forecast amid gas price uncertainty

Inflation could hit 22.4 per cent next year if gas prices remain as high as they are now, according to a terrifying forecast by Goldman Sachs.

That would be the steepest annual increase in the cost of living since 1975, when Labour prime minister Harold Wilson and chancellor Denis Healey faced militant unions’ wage demands and a Middle East oil embargo.

The Bank of England forecasts that inflation will top 13 per cent this autumn while experts at Citi recently predicted that it would jump to 18.6 per cent by next year.

Gloom: Chancellor Denis Healey, left, and prime minister Harold Wilson pictured in 1975 

Goldman Sachs thinks inflation will hit 14.8 per cent in January but warns that the uncertainty around global gas prices means it could be even higher.

Last Friday the energy price cap pushed typical annual energy bills above £3,500 from October. But worse is set to come when it is revised again in January and April.

Goldman Sachs economists said: ‘Wholesale gas prices in the UK have surged by 145 per cent since the start of July.

‘In a scenario where gas prices remain elevated at current levels, we expect the price cap to increase by over 80 per cent in January, which would imply headline inflation peaking at 22.4 per cent.’

Like other forecasters, Goldman’s analysts also warned of a recession starting later this year and said this could be ‘severe and protracted’ if gas prices remain sky high.

The increasingly gloomy inflation outlook for the UK adds further pressure on the Bank of England – which targets a 2 per cent inflation rate – ahead of its next interest rate meeting in two weeks’ time, on September 15.

The Bank’s Monetary Policy Committee is expected to hike rates further to fight the price spiral but will also be worried that doing so could worsen Britain’s imminent economic slowdown.

A host of economic worries left the markets anxious yesterday as the global outlook weighed on sentiment, pushing the price of Brent crude oil as much as 7.2 per cent lower at one point to $97.55 a barrel.

The pound fell as low as $1.1623 against the US dollar, the lowest level since March 2020, while the euro hovered around parity with the American currency.

London’s FTSE 100 fell 0.9 per cent, or 65.68 points, to 7361.63, with mining stocks among the biggest fallers on fears that more aggressive interest hikes by central banks fighting inflation could prompt a global downturn.

Julian Jessop, an economist at the Institute of Economic Affairs, said: ‘These estimates by Citi and Goldman are pessimistic because wholesale gas prices are unlikely to remain this high throughout the winter.

‘Nonetheless, it is essential that the Government has a contingency plan in case energy bills rise even further in 2023.’

Wholesale gas prices fell yesterday – after hitting record levels last week – on signs that Europe was close to achieving its target of boosting its gas storage to 80 per cent of capacity ahead of the winter.

Inflation is still squeezing economies across the continent for now, however.

Figures from Spain yesterday showed inflation remained at double digits as it fell from 10.8 per cent to 10.4 per cent in August.

In Germany, Europe’s biggest economy, it is estimated to have hit 8.8 per cent.

Read more at DailyMail.co.uk