British consumer price inflation is expected to peak at 18% – nine times the Bank of England’s target – in early 2023, an economist at U.S. bank Citi said on Monday, raising the forecast further. once, in light of the latest jump in energy prices.
“The question now is what policy can do to offset the impact on both inflation and the real economy,” Benjamin Nabarro said in a note to clients.
The last time consumer price inflation exceeded 18% was in 1976.
The favorite to become Britain’s next prime minister, Liz Truss, is likely to come up with measures to support families that would have a limited offsetting impact on inflation, Nabarro said.
With inflation now set to peak substantially higher than the Bank of England’s August forecast of 13%, its Monetary Policy Committee will likely conclude that the risks of more persistent inflation have intensified, the note said.
“That means getting rates into restrictive territory and quickly,” Nabarro said.
“If signs of more embedded inflation emerge, we think the 6-7% bank rate will be necessary to control inflation dynamics. allow the MPC to take a break at the turn of the year,” she added.
The BoE announced a rare half-percentage-point interest rate hike earlier this month and investors were expecting another big move when the MPC makes its next scheduled monetary policy announcement on September 15.
Nabarro said he expects Britain’s retail price index – which is used to define the return on inflation-linked bonds – to peak at more than 20%.
Source: CNN Brasil
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