The UK market is facing a brutal start to 2023, with several analysts now predicting inflation will breach 18% early next year as the cost-of-living crisis worsens.
The Bank of England has gone on the record with a prediction that inflation will reach 13% later this year, but that has been blown out of the water after Citi upped the ante with an expectation early 2023 could see it go as high as 18.6%.
An update from Citi on 21 August stated: “We now expect CPI and RPI inflation to break 18% and 21%, respectively, in Q1-23.”
According to its current monthly inflation profile, it expects UK CPI to fall back to 9.9% in August, from 10.1% in July, before shooting back up into double-digit territory in September and steadily climbing to 18.6% in January.
From there, it is predicted to fall steadily and drop back into single digits by October 2023 and below the BoE’s 2% inflation target in April 2024.
And Citi is not sitting out on a limb all alone, with the BBC reporting that think tank the Resolution Foundation has predicted inflation could reach 18.3% early next year.
As noted by Hargreaves Lansdown senior investment and markets analyst Susannah Streeter (pictured) this morning: “The FTSE 100 and FTSE 250 have opened lower as fresh alarm bells have begun ringing over the fragility of the UK economy.”
The Citi update came a week after it called on the BoE to raise rates by a further 125bps over its next three meetings, which would take the base rate to 3%, a level last seen in December 2008.
“With inflation now set to peak substantially higher than the 13% forecast in August, we expect the [monetary policy committee] will conclude the risks surrounding more persistent inflation have intensified,” Citi added.
Although Citi believes evidence of embedded inflation is “limited”, should any such signs emerge, it said a base rate of 6-7% “will be required to bring inflation dynamics under control”.
See also: How bad will the UK recession be?
