Business

Inflation to hit ‘astronomical’ 15% next year as UK households face £3,600 energy bills

Inflation could spike to “astronomical” levels as high as 15 per cent early next year and remain higher for longer than previously thought, experts have warned, ahead of the Bank of England’s latest report on the UK economy.

The dire economic forecasts come as the Bank prepares to hike interest rates tomorrow in a bid to tame out-of-control inflation while sky-high gas prices threaten to push average energy bills well over £3,600 next year.

Consumers face a double-fronted assault on their living standards, with a rate hike making mortgage borrowing more expensive for millions of homeowners while prices for essential goods like energy and food rise much faster than wages.

The Resolution Foundation, a think tank focused on living standards, said it was now “plausible” that inflation could rise to 15 per cent – the highest level since 1980.

Low-to-middle income families are likely to face disproportionately higher living cost levels for the foreseeable future, the foundation said.

It expects inflation to remain persistently high, despite some tentative signs that upward pressure on prices may be beginning to ease.

Market prices for imported commodities including oil and wheat have fallen in recent months as inflation causes the global economy to slow down sharply, reducing demand.

However, this has been more than offset by continued rises in wholesale gas prices caused by Russia’s war in Ukraine.

Jack Leslie, senior economist at the Resolution Foundation, said the outlook for inflation is “highly uncertain”, and largely driven by unpredictable gas prices.

“While market prices for some core goods – including oil, corn and wheat – have fallen since their peak earlier this year, these prices haven’t yet fed through into consumer costs and remain considerably higher than they were in January.

“With gas prices continuing to reach record levels, both households and businesses will see large increases in their energy bills throughout the winter and into 2023. How long this high inflation will last is hugely uncertain, but the cost of living crisis looks set to last longer and hit households harder than previously anticipated.”

In recent weeks, Russia’s state-backed energy giant Gazprom, has cut gas supplies to Europe, pushing up prices drastically and prompting rationing in some German regions.

Fears are growing that further disruption to supplies prices will spike higher still this winter, plunging the continent into a deep recession as gas stocks run low.

The Niesr think tank said it expects inflation to rise to an “astronomical” 11 per cent, and warned that the retail prices index (RPI), which is used to set rail fares and student loans repayments, is expected to hit 17.7 per cent.

Niesr warned that the spending power of household incomes would fall 2.5 per cent next year as prices settle “indefinitely at a higher level”

Real household incomes are forecast to remain over 7 per cent below their pre-Covid trend beyond 2026.

A majority of analysts now expect the Bank of England to vote on Thursday for 0.5 percentage point increase in the Bank’s base rate to 1.75 per cent.

That would immediately push up mortgage rates up for the 20 per cent of borrowers on tracker and variable deals. Many more first-time buyers and people who remortgage over the coming year will also pay higher rates.

Rightmove calculates that a 0.5 percentage point hike would mean new first-time buyers would see monthly mortgage payments increase to over £1,000 a month.

Xural.com

Related Articles

Bir cavab yazın

Sizin e-poçt ünvanınız dərc edilməyəcəkdir.

Back to top button