Citigroup Sees UK Inflation to Top 18% in January amid Energy Price Crisis

Citigroup forecasts the United Kingdom’s inflation rate will exceed 18% in January as the country’s energy price cap soars into the air, according to a Sunday research note.

U.S. banking giant analysts upgraded their projections for the U.K. consumer price index (CPI) and retail price index (RPI) in the first quarter of 2023 to 18% and 21%, respectively. This is based on a £300 policy offset being applied to household energy bills beginning in October and running until the end of 2024.

This week, the Office of Gas and Electricity Markets (Ofgem) will reveal the scale of the next price cap increase, effective October 1. Citi predicts that the average household’s annual cost would rise to £3,717 from the current £1,971.

Citi’s senior associate in the global strategy and macro department, Benjamin Nabarro, sees further increases to £4,567 in January and then £5,816 in April since the risks here remain skewed to the upside.

Meanwhile, Cornwall Insight, a market research firm, recently estimated that the cap will climb to £4,266 in January, while Auxilione, a consultancy firm, forecasted last week that it would reach £6,000 by spring.

U.K. inflation hit a fresh 40-year high in July as surging food and energy prices continued to weigh on consumers, with the annualized consumer price index rose 10.1%, according to estimates published by the Office for National Statistics last week.

The Bank of England raised interest rates by 50 basis points this month, its largest increase since 1995, and predicted the U.K.’s longest recession since the global financial crisis. It also predicted October inflation of 13.3%.

To further tighten monetary policy, Citi now anticipates a further 125 basis points during the next three meetings of the Bank’s Monetary Policy Committee.