UK inflation to top 18% in early 2023

[Hydrogen]

LONDON, Aug 22 (Reuters) - British consumer price inflation is set to peak at 18.6% in January, more than nine times the Bank of England's target, an economist at U.S. bank Citi said on Monday, raising his forecast once again in light of the latest jump in energy prices.

"The question now is what policy may do to offset the impact on both inflation and the real economy," Benjamin Nabarro said in a note to clients.

Consumer price inflation was last above 18% in 1976.

The front-runner to become Britain's next prime minister, Liz Truss, is likely to come up with measures to support households hit by surging energy prices, which might slightly lower the peak rate of inflation, Nabarro said.

Energy regulator Ofgem is due to set out new maximum tariffs for households on Friday, which will take effect in October.

The last tariff increase in April raised the annual bill for a typical household to 1,971 pounds ($2,322) from 1,278 pounds, following a surge in natural gas prices after Russia's invasion of Ukraine.

The next increases are likely to be steeper still, after a 15% rise in natural gas prices over the past week.

Citi forecasts Ofgem will raise the tariff cap to the equivalent of 3,717 pounds from October, with further increases to 4,567 pounds in January and 5,816 pounds in April 2023.

Energy analysts Cornwall Insight also raised their forecasts for Ofgem's regulated tariffs to 3,554 pounds for October, 4,650 pounds for January and 5,341 pounds for May.

"It is difficult to see how many will cope with the coming winter," Cornwall Insight consultant Craig Lowrey said.

In its forecasts at the start of August, the BoE assumed the cap would rise to around 3,500 pounds in October and that energy prices would then stabilise. Consumer price inflation would thus peak at 13.3% in October.

With inflation now set to peak substantially higher, the BoE's Monetary Policy Committee was likely to conclude that the risks of more persistent inflation had intensified, Citi said.

"This means getting rates well into restrictive territory, and quickly," Nabarro said. "Should signs of more embedded inflation emerge, we think Bank Rate of 6-7% will be required to bring inflation dynamics under control. For now though, we continue to think evidence for such effects are limited."

The BoE announced a rare half-percentage-point interest rate increase earlier this month and investors expect another big move when the MPC makes its next scheduled monetary policy announcement on Sept. 15.

Nabarro forecast retail price inflation, which is used to set the return on index-linked bonds, would peak at 21.4%.

($1 = 0.8487 pounds)



https://www.reuters.com/world/uk/uk-inflation-hit-18-early-2023-citi-forecasts-2022-08-22/

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18% UK inflation forecasts are a surprising statistic. The UK doesn't appear to be doing any of the stereotypical things that lead to high inflation, from a historical perspective. Surging energy prices being the only sector mentioned. Perhaps the headline should read: "UK energy price inflation targeted to reach 18% in 2023"?

What steps can consumers take to protect themselves from rising cost of energy and winter heating? Electric heaters were one option mentioned. Conventional wood stoves could be viable for those in rural areas with renewable and natural sources of fuel to burn. If worse comes to worse, trash could be burned to produce heat.

I've heard that homes in the UK are built without heat insulation in the ceiling in an effort to "trap heat" from sunshine. Adding insulation in the ceiling could help to keep heat contained in living spaces. Although I'm not an architect or home builder who has actually tried this to test it.

Its strange to see these headlines lacking commentary on the internet. No one appears to be scrambling to mitigate rising energy costs. It seems as if many will be caught unprepared and unaware by it.

Should more steps be taken to address this?

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[Sandra_hakeem]

Inflation has always been the major compromise to any country's economy thus, this situation is very appalling and needs immediate rehabilitation for the winter; it's gonna be worst when the government are too concerned about politics but cannot solve major inflation traumas like this , that makes me sick to my stomach...  
The Government should prioritize the physical wellness of the citizens; climatic change is no one's fault but nature must have it's way and this,as a matter of fact are seasons that must come and go. During the winter, the regional temperature rises up to       with which it's almost impossible to survive without proper suitings and medications.
I personally will urge whoever is in control of building houses around that peripherals to do the proper thing. I mean,how should people burn up thier trash/bins just to warm up?? That's equally killing yourself down...huh
Sandra ❣️

[Captain Corporate]

First of all it is a forecast*, so its not reality just yet, we are not in ealry 2023 so until that happens we have no idea whats going to happen. But I still think that about %10-15 range is definitely realistic and will be around those levels. I am living in a nation with %160 inflation and we are not dead, which means that even though the life will be much worse, doesn't mean that it will be terrible for everyone. Just realize that you can't do much else but accept the situation. Just wait for it to get better and meanwhile have a bad life, thats literally what you can do and there is nothing that you can do, just accept it and live a bad life, people who try to find a way will fail not because there isn't one, but because nobody will care to fix it anyway.

[jackg]

Wood fires in the UK (especially in homes) are probabky the most efficient way to heat a room quite well. I've been in houses with them (even open plan ones) and they get very hot very fast if you want/need them to.

I'm surprised there aren't more ideas on the steps people can take to save money though - even simple things like switching from old light bulbs to new ones can save about 12x on electricity costs. Standing fees are high in the UK though which might be a problem.

The UK is facing bigger issues because the government and companies aren't doing anything about it. If it didn't cost much more to make green energy before and now gas costs 2-4x the price, maybe you need to roll out green energy faster (forcing energy firms to spend money on investing in green energy that they can then keep going with would be a great policy to bring in but for some reason it's not being done)?

[edgycorner]

Haha classic Britain always being behind! I mean sure their energy prices have been increasing exponentially for the past few months but at least they're catching up to the U.S.! Just kidding, I feel for them. I really do.

But on the bright side, at least brits have the BoE to help control the inflation! Unironically, they've been doing a great job so far....

"The question now is what policy may do to offset the impact on both inflation and the real economy," Benjamin Nabarro said in a note to clients.

Perhaps the government should try implementing some policies to improve the economy, instead of making things worse with their haphazard attempts at damage control.

[adaseb]

I am not surprised. And honestly the inflation is around that rate everywhere pretty much. You look at your bills and inflation is definitely more than 8-9% as from what the fed is saying.

Right now there needs to be a massive job correction. Unemployment needs to rise so people buy sell stuff, everything becomes cheaper, and labor is no longer tight and services are going to be cheaper also. Until that happens inflation will be crazy high.

[Moneyprism]

it's true what some media have said,,, UK now looks like a developing country under the guise of a developed country, because from the political to the economic conditions, it's the same as developing countries.. i don't think that in recent years the UK's condition has improved, on the contrary it goes backwards when other countries advance

[el kaka22]

FED is in USA, and this is UK we are talking about. So, "technically" speaking UK could have 18% while USA having 59. But I agree, if you look at everything in price, it looks like it's a lot more in the USA as well. Don't get me started on my nation, at this point I feel like everything is 5x more expensive, maybe it is not "that" much but it certainly does feel that way.

I make 3x more than I used to make compared to last year, and I am still having hard time living, last year I was living a lot better even though I made less. That's the trouble isn't it? I mean if you made half of what you are making right now and lived richer, that should be the key factor to why inflation is bad.

[fiulpro]

The overall cost of Living, electricity, gas, everything is sky rocketing at the moment and this winter is going to be extremely hard as well for the people who are living in the UK but at the end I do think new Presidents will try and solve this so that they get people's attention and also votes thus this seems to be a perfect ploy to have a new governing party since the country is not so bent over to solve them at the moment, remember the words of Boris Johnson, when he said that people should wear more clothes during the winter when the was asked about the rising prices of gas and problem with heating household etc.

[DooMAD]

The UK is facing bigger issues because the government and companies aren't doing anything about it.

Arguably by design.  The government are doing everything they can to funnel as much money as possible into the pockets of wealthy business owners who probably donate large sums to their reelection campaigns.  It's not in their (short term) interests to do anything about it.  They clearly want it like this.  A deliberate and willful act.

[Gyfts]

What steps can consumers take to protect themselves from rising cost of energy and winter heating? Electric heaters were one option mentioned. Conventional wood stoves could be viable for those in rural areas with renewable and natural sources of fuel to burn. If worse comes to worse, trash could be burned to produce heat.

I've heard that homes in the UK are built without heat insulation in the ceiling in an effort to "trap heat" from sunshine. Adding insulation in the ceiling could help to keep heat contained in living spaces. Although I'm not an architect or home builder who has actually tried this to test it.

Its strange to see these headlines lacking commentary on the internet. No one appears to be scrambling to mitigate rising energy costs. It seems as if many will be caught unprepared and unaware by it.

Should more steps be taken to address this?

The usual methods against protecting one's self from inflation don't apply when there are artificial product shortages, meaning the UK inflation rate is a development strictly from energy costs (in addition to the post COVID money printing, but obviously that would not result in a near 20 percent inflation rate). I don't think there's an actual solution that the government could endorse other than radically shifting their energy policy to include cheap oil/natural gas and dumping renewables entirely. How many UK residents can reasonably obtain alternative heating methods? Consider that the price of firewood, insulation costs, etc. would begin to rise as demand for heating alternatives rise -- you wouldn't end up at a solution even if trying to find alternatives.

[paxmao]

YoY inflation on 18% is unlikely, but despite that is going to be very high. The social context is already close to the seventies, with a number of strikes on key sectors such as transportation, quite more intense than usual. Some of them do not get on the news, but they are successful and that means that more people are actually being able to update the salaries.

[Ultegra134]

I recently saw a video (will update my post if I stumble upon it again) regarding UK's inflation records in electricity, claiming that UK's reliance on Russian imports was only 4% for CNG, but still, they were facing massive surges in electricity prices. A quick google searched revealed that UK's imports are minimal, about 9% of oil and 22% of coal are imported from Russia. Facing such high electricity and petrol prices looks pure speculative to me. Correct me if I'm wrong, someone from UK might be more knowledgeable, but I don't see another reason.

Personally, I believe that some corporations are taking advantage of the current situation and excessively increase their prices in the name of war. Electricity providers and oil companies are some reasonable examples, who have scored billions in profits the past few months.

Source: https://commonslibrary.parliament.uk/research-briefings/cbp-9523/

[adaseb]

The issue right now with many economies is the job numbers. The numbers are way too high and unemployment is way too low. Sounds good but this is one of the reasons why inflation keeps growing.

People find higher paying jobs and those employers need to increase salary. When they do that they need to increase cost and it’s a never ending cycle.

[hugeblack]

It has been a long time since the last visit to Britain but I do not think inflation rate at 18% will be acceptable, but at least, the central bank has one of the tools that make it decrease in a short period, so this inflation is phased.
the federal policies will greatly affect the financial instrument in Britain.
Generally, citizens have no much to this winter, but many expect things to improve, so citizens only have to wait for the violation of the crisis and wish that the winter will be lighter than before.

[DooMAD]

People find higher paying jobs and those employers need to increase salary. When they do that they need to increase cost and it’s a never ending cycle.

I notice no one ever argues that the big CEOs and chairmen taking home millions in wages and bonuses are causing inflation.  But as soon as ordinary workers request a living wage, suddenly it's a problem.  Bullshit peddled by apologists for exploitative employers.

[dark1234]

If this happens - an inflation of 18% - of course it will have fatal consequences for the people who actually have lower middle income, the government must find solutions and adjust income and salaries for them, because electricity and gas energy needs are important before winter arrives.

[lucates]

Last time the UK's consumer inflation crossed the 18 percent mark was in 1976. For June Uk reported 10.1 percent inflation the highest in 40 years and that figure has been triggered by the global energy price rise a fallout from the war in Ukraine. Now energy retailers asking for a tarriff deficit fund which freeze the price of the energy right now and we can pay it back when the prices are a bit lower. But ultimately people's mental health is likely to be suffering as well as their pockets.

[Silberman]

Last time the UK's consumer inflation crossed the 18 percent mark was in 1976. For June Uk reported 10.1 percent inflation the highest in 40 years and that figure has been triggered by the global energy price rise a fallout from the war in Ukraine. Now energy retailers asking for a tarriff deficit fund which freeze the price of the energy right now and we can pay it back when the prices are a bit lower. But ultimately people's mental health is likely to be suffering as well as their pockets.

This situation is bad but the worst part is that it does not seem as if things are going to improve soon, so the high inflation is going to be with us for a long time and this is very problematic because many people are already having problems paying for their bills, and if we add even more inflation during the next years then at some point those people will reach a breaking point and they will be unable to maintain their current standards of living.

[Smack That Ace]

People find higher paying jobs and those employers need to increase salaries. When they do that they need to increase costs and it’s a never-ending cycle.

I notice no one ever argues that the big CEOs and chairmen taking home millions in wages and bonuses are causing inflation.  But as soon as ordinary workers request a living wage, suddenly it's a problem.  Bullshit peddled by apologists for exploitative employers.

That's common in most companies. CEOs only focus on getting richer without even valuing the hard work of their employees by granting at least a little increase which will be helpful, especially during this crisis. They should make their employees valued and important because they are the body of the company. Without them, CEOs won't gain anything.

Can't be compared that way, though when we look at that picture we'd say that's not fair. The workers work hard and they only complete the assigned work, other than that they don't have to do anything extra. But for a CEO of a company or a corporation. In addition to running a company with thousands of employees, they must always find ways to maintain the company, always have to come up with new initiatives, and create different products, under competitive pressure from competitors...in general, they are under a lot of pressure that we don't see. We work as hired laborers to support our family and loved ones, maybe for 5 to 7 people but with positions like CEO, they are taking care of jobs for millions of workers. That's a lot of pressure.

[DooMAD]

they must always find ways to maintain the company, always have to come up with new initiatives, and create different products, under competitive pressure from competitors...

Much of that gets delegated to middle-management in large corporations.  There may be occasions where it could be justified for a CEO to be earning 1000% above what anyone else in the company earns.  Yet in some companies, the disparity can be as high as 50000% or greater.  And the gap is growing.

[Scripture]

If this happens - an inflation of 18% - of course it will have fatal consequences for the people who actually have lower middle income, the government must find solutions and adjust income and salaries for them, because electricity and gas energy needs are important before winter arrives.

Higher inflation started to feel in UK since the Brexit, and the UK government really knows the effect of that and I'm sure they are more ready by that time but due to unforeseen circumstances started from the Covid, other issues and now with the war between Ukraine and Russia, the situation becomes more worst and unexpected for them. That high inflation should address right away, or else they will suffer more. They are conserving their gas consumption for the winter, but I don't think it's enough to fully control the inflation, to lower that rate it will take years and probably a decade especially if they still have no solution for this.

[$anounimus$]

Inflation is already a global problem including for the British people, but it looks like it will get a lot worse before it gets better to tame inflation. Personally, I think there are two issues at play here. The first is that the problem of higher inflation has existed for some time, yet it has not been given the attention it deserves.

It is possible that the price increase will continue to increase with little response from the government. The second problem is the impact of inflation on businesses and entrepreneurs. Many financial planners recommend budgeting at least five percent more annually to accommodate this rising inflation rate. That's hardly ideal for those vying for a certain profit margin by the end of the year.

in my view, The government needs to find a way of maintaining a soft Brexit and also keep inflation below 18 percent. It will be an interesting challenge.

[Mauser]

Its strange to see these headlines lacking commentary on the internet. No one appears to be scrambling to mitigate rising energy costs. It seems as if many will be caught unprepared and unaware by it.

Should more steps be taken to address this?

I also find it strange that there is no stronger focus on the inflation now. This week with the death of the Queen nobody will look at evomics, but before there should have been more pressure to fix the economic outlook. The next two weeks will be public mourning and not much else happening. Eventually the inflation rate needs to be brought down, you can't have double digit inflation rates for a longer period of time. If things get worse this could lead to a spiral and bring inflation out of control. Finding a new government probably also didn't help. But the good thing is UK still has it's own currency and react freely now without worrying about the EU.

[DooMAD]

Eventually the inflation rate needs to be brought down, you can't have double digit inflation rates for a longer period of time. If things get worse this could lead to a spiral and bring inflation out of control. Finding a new government probably also didn't help. 

It's not going to improve any time soon.  In fact, it'll probably get much worse.  The new government describe themselves as "unashamedly pro-growth".  This will likely only exacerbate the current trends, as rapid economic growth typically causes inflationary pressures.