LONDON (Reuters) – Britain’s consumer price inflation could peak in early 2023 at 18%, nine times the target set by the Bank of England (BoE), an economist said on Monday. US bank Citi after raising its forecast to incorporate the latest increase in energy prices.
“The question now is what policy to pursue to cushion the impact on both inflation and the real economy,” Benjamin Nabarro said in a note to bank clients.
We have to go back to 1976 to find a British inflation rate above 18%.
The favorite for the succession of Boris Johnson as Prime Minister, Liz Truss, is expected to announce measures to help households once in power but this should have only a limited effect, added Benjamin Nabarro.
The Bank of England, which declared at the beginning of the month that the rise in prices should peak at 13%, should meanwhile come to the conclusion that the risks of more persistent inflation have increased, continues the economist.
“That means getting rates clearly into restrictive territory, and fast,” he said.
He adds that “if signs of more entrenched inflation appear”, the BoE may have to raise its key rate to 6%-7% “to regain control of inflationary dynamics”.
But he still favors the hypothesis of an increase in unemployment in the coming months which would allow the BoE to pause.
The BoE’s Monetary Policy Committee (MPC) raised its benchmark rate by half a point earlier this month and markets are expecting another sharp hike at its next meeting on September 15th.
(Reportage William Schomberg, French version Marc Angrand, edited by Kate Entringer)
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