Experts warn inflation could hit 15%
The Resolution Foundation predicts that inflation could hit 15% at the beginning of 2023, while the National Institute of Economic and Social Research (NIESR) warns that Brits’ savings could be eradicated by rising costs.
The latest figures from the Office for National Statistics show that inflation hit 9.4% in June.
The Resolution Foundation said that record UK gas prices are likely to trigger the Bank of England to forecast a higher and later peak for inflation.
The think tank’s latest analysis, In the dread of winter, looks at how the outlook for inflation has changed since the Bank of England’s last Monetary Policy Report in May.
The analysis found that although global commodity prices have fallen substantially over recent months, rising gas prices in the UK are wiping out any good news for Brits.
It said that current expected gas prices for winter 2022-23 are close to 50% higher than they were in the aftermath of the Russian invasion of Ukraine.
In May the Bank of England predicted that inflation would peak in Q4 2022 at about 10% – but the impact of the rising energy price cap means inflation could rise to 15% in Q1 2023.
Jack Leslie, senior economist at the Resolution Foundation, said: “The outlook for inflation is highly uncertain, largely driven by unpredictable gas prices, but changes over recent months suggest that the Bank of England is likely to forecast a higher and later peak for inflation – potentially up to 15% in early 2023.
“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.”
Meanwhile NIESR has warned that inflation and a growing tax burden will lead to 5.3 million people – one in five of all households – having no savings by 2024.
NIESE said that by next year, energy bills would exceed disposable incomes for about 1.2 million people in the UK.
It also warned that the retail prices index (RPI) measure of inflation which is used to set rail fares, student loans repayments and some payments to the government, is expected to hit 17.7%.
The think tank predicted that the economy would fall into recession in the coming months due to rising energy and food costs, and higher taxes.
It called on the new prime minister to increase Universal Credit by £25 a week for six months, starting in October.
Adrian Pabst, NIESR deputy director for public policy, said that the most vulnerable households would have to “resort to credit, build up payment arrears, or see their savings wiped out.”