Goldman warns UK inflation could top 20% as a recession nears

/ Business News / By

Inflation in Britain could exceed 20% early next year if spiraling gas prices fail to come down, warned economists from U.S. investment bank Goldman Sachs. They added that a recession was on the way.

Last week, Britain’s energy regulator announced that power bills will jump 80% to an average of £3,549 ($4,188) a year from October, plunging millions of households into fuel poverty and leaving businesses at risk unless the government steps in.

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, exacerbating the country’s existing cost-of-living crisis.

Britain’s energy regulator announced last Friday 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.

The Bank of England earlier this month also warned that the country is headed for the longest downturn since the financial crisis.

Recession

“In a scenario where gas prices remain elevated at current levels, we would expect the price cap to increase by over 80% in January,” Goldman warned.

Under those circumstances, the British economy would shrink by 3.4% “due to a larger hit to real disposable incomes,” the Wall Street titan added.

Goldman Sachs economists said: “Wholesale gas prices in the UK have surged by 145% since the start of July. In a scenario where gas prices remain elevated at current levels, we expect the price cap to increase by over 80% in January, which would imply headline inflation peaking at 22.4%.”

Like other forecasters, Goldman’s analysts also warned of a recession starting later this year and said this could be “severe and protracted” if gas prices remain sky-high.

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