UK inflation could top 22% as energy prices soar, Goldman Sachs warns

• U.K. inflation could soar above 22% next year if energy prices continue their upward spiral, U.S. investment bank Goldman Sachs warned. In a research note dated Monday, August 29, 2022, Goldman said headline inflation could peak at 22.4% and the gross domestic product could drop by 3.4% if energy costs keep rising at their current pace.
• This comes after British households were hit with a projected 80% increase in their energy bills in the coming months, taking the average annual household bill to £3,549 ($4,197) from £1,971 and exacerbating the country’s existing cost-of-living crisis.
• Britain’s energy regulator, Ofgem, announced Friday, August 26, 2022, that it would raise its main cap on consumer energy bills from Oct. 1 to keep pace with rising wholesale gas prices, which have surged 145% in the U.K. since early July. Ofgem is due to recalculate its price cap again in three months. However, Goldman said that if prices remain “persistently higher,” another 80% hike could be possible.
• If, however, energy prices moderate, 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.
• The bank also said that the U.K. was likely to fall into a recession in the fourth quarter. It forecast that the U.K. economy would contract by -0.3% on a non-annualized basis in the fourth quarter of this year, followed by -0.4% and -0.3% in the first and second quarters of 2023, respectively. This comes on the back of the impact of surging inflation on households' disposable incomes and consumption.

(Source: CNBC)