As if today’s 13% rise in European benchmark natural gas prices wasn’t enough, today Citi is out with a note saying UK inflation is on course to rise 18.6% y/y in January.
The forecast is largely based on natural gas prices and doesn’t take into account potential mitigation strategies from the government. The current level of the energy cap is £1971 per year. They see it rising to £4567 in January and £5816 in April.
Inflation that high would break the 1979 peak and push the country into recession.
“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,” wrote Citi in a note.
Last week the Bank of England grabbed headlines with a forecast of 13% at the turn of the year.