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UK inflation to hit 18% in early 2023, Citi forecasts
Global Banking & Finance Review®
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By William Schomberg
LONDON (Reuters) – British consumer price inflation is set to peak at 18% – nine times the Bank of England’s target – in early 2023, an economist at U.S. bank Citi said on Monday, raising his forecast once again in the light of the latest jump in energy prices.
“The question now is what policy may do to offset the impact on both inflation and the real economy,” Benjamin Nabarro said in a note to clients.
Consumer price inflation was last above 18% in 1976.
The front-runner to become Britain’s next prime minister, Liz Truss, was likely to come up with measures to support households that would have a limited offsetting impact on headline inflation, Nabarro said.
With inflation now set to peak substantially higher than the Bank of England’s 13% forecast in August, its Monetary Policy Committee was likely to conclude that the risks of more persistent inflation have intensified, the note said.
“This means getting rates well into restrictive territory, and quickly,” Nabarro said.
“Should signs of more embedded inflation emerge, we think Bank Rate of 6-7% will be required to bring inflation dynamics under control. For now though, we continue to think evidence for such effects are limited with increases in unemployment still more likely to allow the MPC to pause around the turn of the year,” he added.
The BoE announced a rare half percentage-point interest rate increase earlier this month and investors expected another big move when the MPC makes its next scheduled monetary policy announcement on Sept. 15.
Nabarro said he expected Britain’s retail price index – which is used to set the return on inflation-linked bonds – would peak at over 20%.
(Reporting by William Schomberg; editing by David Milliken)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, maintaining monetary stability, and overseeing the financial system.
The Monetary Policy Committee (MPC) is a group within the Bank of England that sets the official interest rate and makes decisions regarding monetary policy to control inflation.
The Consumer Price Index (CPI) measures the average change over time in the prices paid by consumers for a basket of goods and services, serving as an indicator of inflation.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount. They are influenced by central bank policies and economic conditions.
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