Millions of people in the UK would be put into “dire straits” this winter if inflation predictions are correct, an expert has warned.
Citi has today (August 22) forecast that the consumer price index will hit 18.6 per cent in January next year, far higher than the Bank of England’s estimate of 13 per cent.
Citi also predicted the energy price cap will hit £4,567 in January and £5,816 in April, more than double the current cap of £1,971.
“We now expect CPI inflation to peak at over 18 per cent in January,” said Benjamin Nabarro, chief UK economist at Citi, who also said he thinks this will push the Bank of England into further tightening interest rates.
The central bank has raised the base rate of interest at each opportunity this year, and hints at further increases have heightened fears of a swelling number of mortgage prisoners.
“Inflation at 18.6 per cent would push millions of people into dire straits,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.
These price rises are being driven by the essentials people need to stay alive, she said, and will hit those on lower incomes hardest.
“A winter of woe is looming,” she said, and the energy price rise will be responsible for the majority of the increase.
Using Cti’s predictions, Coles said the lowest 10 per cent of earners will be spending an average of 41 per cent of their total income on energy by April.
“Given that the price of everything else is also soaring, it’s going to be impossible for huge numbers of people to stay on top of their bills,” she said.
Many UK households could face a “financial breaking point” without meaningful intervention, said Myron Jobson, senior personal finance analyst at Interactive Investor.
“There are not enough tools in the personal finance box of tips to shield those living on a bare bone budget from rising prices,” he added.
The government has been accused of “navel gazing” instead of intervening in inflation, with others warning that the cure of high interest rates could be worse than the disease.
The frontrunner to win the Conservative party leadership election, Liz Truss, has not clarified the policies her government would implement to help the cost of livig crisis were she to win the contest.
However, she has recently signalled she will intervene “across the board” to help companies and households deal with the cost of living crisis this winter.