Aug 22, 2022 - Economy

U.K. inflation could hit 18% next year, Citi projects

Grocery store shelf

Photo: Rasid Necati Aslim/Anadolu Agency via Getty Images

Inflation in the United Kingdom is on track to exceed 18% in January 2023, according to new projections from U.S. banking giant Citi.

Why it matters: This would be the highest inflation peak in nearly 50 years, The Guardian notes.

  • The new projection is significantly higher than the Bank of England's prediction earlier this month that inflation would peak at 13% by year-end. The prediction had come as the Bank of England implemented its steepest interest rate hike since 1995 in an effort to curb inflation.
  • In May, it had predicted that inflation would peak at 11%.

The big picture: The foreseen jump in inflation comes in light of soaring energy prices in the U.K., according to Benjamin Nabarro, the chief U.K. economist at Citi, per The Guardian.

  • The U.K.'s Consumer Price Index inflation number is expected to hit 18.6% in January 2023, while the retail price index inflation will hit 21%.

What to watch: “The question now is what policy may do to offset the impact on both inflation and the real economy,” Nabarro wrote in a note to clients on Monday, Al Jazeera reports.

  • Comments by Foreign Secretary Liz Truss, a front-runner to become the prime minister, "point to only a limited offset for headline inflation," Nabarro wrote, per The Guardian.
  • If the U.K.'s Monetary Policy Committee concludes that "the risks surrounding more persistent inflation have intensified" this could mean further aggressive rate hikes from the Bank of England, per CNBC.
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