UK inflation could hit 15% by early 2023, experts say | Inflation


Annual inflation in the UK could reach 15% by early 2023, experts predict, as further sharp increases in energy prices push up the cost of living.

On the eve of the Bank of England’s latest interest rate decision, the Resolution Foundation think tank said price pressures would likely be stronger and last longer than the Bank previously forecast.

The Bank’s monetary policy committee — which said in June it expected inflation to peak at just over 11% in October — is poised to raise official borrowing costs for the sixth straight month on Thursday, despite signs that the economy weakens.

The latest monthly health check of the services sector from S&P Global and the Chartered Institute of Procurement and Supply shows that activity among private companies operating in the services sector has fallen to its lowest level since the winter lockdown in early 2021.

Tim Moore, chief economic officer at S&P Global Market Intelligence, said: “Reduced levels of discretionary consumer spending and corporate spending control efforts in the wake of escalating inflation have combined to put pressure on demand in the service economy.

“The near-term outlook also looks bleak as new order growth remained close to its 16-month low in June and business optimism was the second weakest since May 2020.”

The Resolution Foundation pointed to some good news on inflation as some commodity prices fell, including oil, but this was more than offset by the rising cost of gas. As a result, the annual energy price cap in the UK is now forecast to rise from just under £2,000 to around £3,500 when the new figure for October is announced at the end of the month.

Jack Leslie, senior economist at the Resolution Foundation, said: “Inflation outlook is highly uncertain, driven largely by unpredictable gas prices, but changes in recent months suggest the Bank of England is likely forecasting a higher and later peak for inflation — possibly up to 15% in early 2023.

“While market prices for some core commodities – including oil, corn and wheat – have fallen since their peak earlier this year, these prices have not yet made their way into consumer costs and remain significantly higher than in January.”

In its annual assessment of the UK, the Organization for Economic Co-operation and Development (OECD) said a strong recovery from the pandemic came to an end and the economy was experiencing slower growth with rising inflation and labor shortages.

Mathias Cormann, the OECD Secretary General, said: “Like other economies around the world, the UK economy is facing a number of headwinds, with pre-existing structural challenges exacerbated by the pandemic and the Russian war of aggression against Ukraine.

“The key to stronger economic growth and better opportunities will be stronger productivity growth.”

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