Economists are warning that the ongoing energy crisis could send inflation skyrocketing in the U.K.
Goldman Sachs economists are warning that the United Kingdom could be facing 22.4% inflation rates in 2023. The estimate is tied to the increasing cost of energy in Europe, which has spiraled out of control in recent months.
“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%,” says Goldman Sachs economist Sven Jari Stehn.
The U.K.’s inflation rate spiked to more than 9% in June following the war in Ukraine, but hasn’t decreased as the U.S. inflation rate has.
America’s most recent recorded rate was 8.5% in July, while the U.K.’s was 10.1%. And it is expected to increase.
A Wednesday CNBC report shows overall European inflation hitting 9.1% in August, an increase from 8.9% in July.
Why it’s important
The inflation spike comes as British homes experienced a 145% price surge in gas prices, a coming 80% increase in energy bills, and an announcement by energy regulators that energy bill caps would increase on October 1.
With no imminent end to the energy shortage, the U.K. economy is staring down a year of skyrocketing prices and economic pain. The Bank of England has already said a fourth-quarter recession is likely and that inflation projections have exceeded expectations.
“U.K. peak inflation is likely to hit 14.8% in January, Goldman’s commodity strategists predicted—well above the 13.3% forecast by the Bank of England earlier this month,” says CNBC.
Backing up a bit
As we reported last week, Energy prices are spiking across Europe by over 1,000 Euro per megawatt in response to the continued effects of the Russian war in Ukraine. Volatile electricity prices are becoming worse due to the Russians threatening energy supplies. Prices have continued to skyrocket for the past seven weeks and are placing Europe in a dangerous position for the winter.
“Russia stopped gas flows through the Nord Stream 1 pipeline to the bloc on Wednesday with Gazprom starting three days of planned maintenance on the line. Russia has already been accused of weaponizing gas supplies to Europe and fueling a cost-of-living crisis in retaliation for Western sanctions due to its invasion of Ukraine,” says Yahoo Finance.
“Prices in British shops rose at the highest rate since at least 2005 this month as Britons battled soaring costs on everything from gasoline to crisps. The British Retail Consortium said shop price inflation accelerated to 5.1% in August, a new record for the index which was started in 2005, and up from 4.4% in July. Food price increases hit 9.3% with milk, margarine and crisps seeing the biggest rises. This level of food inflation could continue for at least another six months,” says Bloomberg.