Inflation in the UK could hit 18.6 per cent by the start of next year, according to the latest economic forecasts from US bank Citi.
This is significantly higher than the Bank of England forecasts, which predict inflation peaking at around 13 per cent towards the end of this year.
In a note to clients, Benjamin Nabarro, chief UK economist at Citi, said that UK inflation is “entering the stratosphere” and that affordability concerns are “growing more deafening by the day”.
The consumer prices index (CPI), which is the main measure of inflation, was last as high as 18 per cent in 1976.
This latest Citi forecast takes into account the expect rise to the energy price cap, which it says will increase to £3,717 in October, to £4,567 in January, then £5,816 in April.
Pension experts have warned that price rises of this magnitude could be devastating for many consumers, with those on low income and pensioners particularly hard hit.
LCP partner and former pensions minister Steve Webb points out that next year’s state pension increase is based on this September’s inflation figure, which is likely to be between 10 and 11 per cent.
He says that this could prove challenging for many pensions and points out that last year’s increase has been significant’y below inflation for this year.
Hargreaves Lansdown senior personal finance analyst Sarah Coles says: “Inflation at 18.6% would push millions of people into dire straits.
“A winter of woe is looming amid these frightening forecasts and there is little help in sight to stop a spiral of debt.
“Using these calculations, someone in the lowest 10 per cent of earners could spend an average of 41 per cent of their total income on energy by April – even before they’d put a roof over their head or fed their family. Someone living entirely on the full flat rate state pension could spend 60 per cent of their income on energy by that point.
“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 points out that those who had saved anything during the lockdowns may well be forced to eat into their savings, while those with nothing left may be forced to borrow – if they can.
