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UK inflation to hit 15% in early 2023, Citi predicts

British consumer price inflation is likely to peak at an annual rate above 15% in the first three months of next year unless there are government measures to lower prices, economists at U.S. bank Citi forecast on Wednesday.

Earlier on Wednesday, official figures showed CPI hit 10.1% in July, above all economists’ predictions in a Reuters poll.

“In our view, the composition re-affirms the risk of more sustained domestic inflation. In the absence of offsetting support, we expect CPI inflation to accelerate to over 15% in Q1-23,” Citi economist Benjamin Nabarro wrote in a note to clients.

Citi had previously forecast CPI inflation would peak at just below 12%.

Citi also revised up its expectations for BoE interest rates, predicting they would rise by 1.25 percentage points to 3% by the end of this year, up from a previous forecast for a half percentage point rise in the remainder of 2022.

Analysts at Citi said household finances are set to come under intense pressure from the price surge, forcing them to slash spending, tipping the UK economy into recession.

Elevated energy prices, caused by Russia’s invasion of Ukraine disrupting the European gas market and global supply being outpaced by a sudden burst in demand after the Covid-19 unlocking, have sent inflation on an upward spiral.

Ofgem, the market regulator, is on Friday expected to announce bills will climb around 75 per cent in October. Citi said bills may jump above £4,500 in January based on current gas future prices.

The new forecasts are gloomier than the Bank’s projection earlier this month, which were branded by fellow investment bank Goldman Sachs as the most downbeat ever published by a central bank.

Governor Andrew Bailey and the rest of the monetary policy committee think the UK will suffer a more than 13 per cent inflation peak and that households’ living standards will fall by the biggest cumulative 2-year amount on record.

Those dynamics are set to plunge Britain into a 15-month long recession, the longest since the financial crisis, starting in the final months of this year.

Inflation is already running at 10.1 per cent, more than five times the Bank’s two per cent target.

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