Goldman Sachs has forecasted that inflation in the United Kingdom could soar to the highest level since 1975 if global gas prices do not fall from their historic highs.
The Wall Street investment bank warned yesterday that the cost of living would climb to a peak of 22.4% if the energy watchdog is forced to heap even more woe onto households by passing on elevated gas prices again in January.
Oilprice.com noted yesterday in a report that the fresh warning adds to the string of experts warning the UK is set to tumble into a tough slump over the winter that may last for more than a year.
The investment bank, according to the report warned in a note over the weekend that Britain will tip into a recession in the final months of this year and stay there until the beginning of 2024. Citigroup had earlier this month said inflation is set to peak at nearly 19%.
Also Read: UK Hits Target, Achieves Zero Fuel Imports From Russia
It will be recalled that the Bank of England earlier this month also warned that the UK is headed for the longest downturn since the financial crisis.
“In a scenario where gas prices remain elevated at current levels, we would expect the price cap to increase by over 80% in January,” Goldman warned. It said that under those circumstances, the British economy would shrink 3.4% “due to a larger hit to real disposable incomes,” the Wall Street titan added.
Energy regulator, Ofgem last week predicted that household bills will jump 80% in October to £3,549. The report said Britain may find itself absorbing the worst hit to their living standards on record over the next 18 months or so due to rising prices eroding wage growth.
Household consumption is expected to dip in response to this living standards shock, dealing a sharp blow to the health of the economy. An elevated inflation will force Bank governor, Andrew Bailey and the rest of the monetary policy committee to keep hike interest rates rapidly despite the economic slump, Oilprice said in the report.
Also Read: Russia Applies Huge Discounts To Counter U.S. Oil Price Cap Push
“We continue to look for the BoE to hike by another 50 basis point in September and see upside risks to our expectation of 25 basis point hikes in November and December given continued upside inflation and wage growth surprises and the need to keep inflation expectations anchored,” Goldman said.
The Bank has lifted borrowing costs six times in a row to tame rising prices, sending them to 1.75%. Prices are up 10.1% over the last year, the quickest acceleration in 40 years. Inflation has soared to a 40-year over the last year