UK inflation could top 22% as energy prices soar, Goldman Sachs warns

Goldman Sachs has mentioned that the U.Okay. is prone to fall into recession within the fourth quarter 2023.

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LONDON — U.Okay. inflation could soar above 22% subsequent 12 months if energy prices proceed their upward spiral, U.S. funding financial institution Goldman Sachs warned.

In a analysis be aware dated Monday, Goldman mentioned headline inflation could peak at 22.4% and gross home product could drop by 3.4% if energy prices preserve rising at their present tempo.

It comes after British households have been hit with a projected 80% enhance of their energy payments within the coming months, taking the common annual family invoice to £3,549 ($4,197) from £1,971 and exacerbating the nation’s present cost-of-living disaster.

Britain’s energy regulator introduced Friday that it could increase its major cap on client energy payments from Oct. 1 to maintain tempo with rising wholesale fuel prices, which have surged 145% within the U.Okay. since early July.

Ofgem is because of recalculate its value cap once more in three months. However, Goldman mentioned that if prices stay “persistently higher,” one other 80% hike could be potential.

“In a scenario where gas prices remain elevated at current levels, we would expect the price cap to increase by over 80% in January … which would imply headline inflation peaking at 22.4%,” Goldman economists, led by Sven Jari Stehn, mentioned within the be aware.

If, nonetheless, energy prices average, U.Okay. peak inflation is prone to hit 14.8% in January, Goldman’s commodity strategists predicted — properly above the 13.3% forecast by the Bank of England earlier this month.

The financial institution additionally mentioned that the U.Okay. was prone to fall right into a recession within the fourth quarter. It forecast that the U.Okay. financial system would contract by -0.3% on a non-annualized foundation within the fourth quarter of this 12 months, adopted by -0.4% and -0.3% within the first and second quarters of 2023, respectively.

“We now expect the deepened cost-of-living crisis to push the U.K. economy into recession later this year,” the be aware mentioned.

Goldman’s outlook is the most recent gloomy forecast for the British financial system, with Citi predicting final week that U.Okay. inflation would breach 18% in January 2023.

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