UK inflation may to hit 18.6 per cent in January, the highest level in almost a century. This is according to Citigroup who point that soaring wholesale gas prices will make inflation hit the roof.
“We now expect CPI inflation to peak at over 18 per cent in January,” said Benjamin Nabarro, chief UK economist at Citi.
The Financial Times reported that that would be higher than the peak of inflation after the second Opec oil shock of 1979 when CPI reached 17.8 per cent
“Even with the economy softening, last week’s data reaffirmed the continued risk of pass through from headline inflation into wage and domestic price setting could accelerate,” Nabarro added.
Nabarro predicts that the government will add to its existing support, suggesting a support package of around £40bn:
“We already account for a £300 reduction in bills associated with the suspension of the Green Levy and a cut to VAT on household energy bills.
“However, in reality any government response to this is likely to involve substantially more fiscal firepower (around £40bn in our view). Offsetting the energy increase in full would cost around £30bn for the coming six months (1.4% GDP).
“The issue for inflation is whatever fiscal space is deployed is likely to be squeezed between weaker medium term forecasts and the desire to cut taxation. This means disinflationary measures are likely somewhat further down the pecking order.”
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