Goldman Sachs Warns That UK Inflation Could Reach 22% in January – German inflation Nears a 50-Year Peak
If The UK Energy Price Cap Climbs 80% in January Inflation Might Approach 20% According to an Investment Bank While The Baseline Prediction Shows Inflation Climbing to About 15%
Goldman analysts led by Sven Jari Stehn wrote in a note on Monday that if prices remained at current highs, the UK would be compelled to raise its energy cap by 80% in January.
This would be in addition to the 80% hike in the cap that took effect in October, raising average dual fuel bills to £3,549 per year.
If this occurs, Goldman forecasts that inflation will reach 22.4%, a very bad outcome, and GDP will fall by 3.4%.
Even if energy prices fall, as Goldman’s commodities analysts predict, UK inflation could reach 14.8% in January, up from 10.1% the previous month.
They wrote:
“Wholesale gas prices in the UK have surged by 145% since the start of July, and while our commodity strategists do not expect the recent spike in European gas prices to persist, we view persistently higher gas prices as an upside risk to our forecast for the Ofgem price cap increase in January.
Indeed, in a scenario where gas prices remain elevated at current levels, we would expect the price cap to increase by over 80% in January (vs 19% assumed in our baseline), which would imply headline inflation peaking at 22.4%, well above our baseline forecast of 14.8%.”
That baseline forecast would still be bad enough to push the UK into recession.
The good news is that UK gas prices continue to fall today, but it demonstrates how bad the winter might be for homes and businesses.
Goldman Sachs has downgraded its growth outlook sharply and now expect the UK to enter into a recession starting in October-December.
Goldman’s base scenario is that inflation will reach about 15% in January, when the price cap is next lifted, and that the UK would experience a reasonably brief recession.
Goldman has cautioned that “consistently higher gas prices” constitute a danger to its estimate. If gas prices stay at their current exorbitant levels, inflation might reach 22%.
In that scenario, Goldman forecasts that real GDP would fall by roughly 3.4% due to the significant impact of inflation on real disposable incomes.
That would be a devastating blow to households and businesses, with millions of people already struggling to keep up with mounting bills and businesses threatening to close.
Thousands more pubs threaten collapse if the government does not provide immediate assistance to mitigate the impact of rising energy costs, according to the beer business, putting jobs at risk across the board.
Thousands more pubs face collapse unless the government provides immediate assistance to mitigate the impact of rising energy costs, according to the beer industry, putting employment at danger in a sector still struggling to recover from the Covid pandemic.
The owners of nearly half of the UK’s 47,000 pubs said tenants were already giving notice because they couldn’t afford the energy bills, which are set to more than fivefold in some cases.
Businesses, unlike consumers, do not benefit from a ceiling on what suppliers may charge for gas and electricity, leaving many firms facing extinction if the government does not intervene.
The British Beer and Pub Association stated in a letter to the government and the Conservative leadership candidates, Liz Truss, and Rishi Sunak, that mass job losses were unavoidable in the absence of assistance for an industry that employs 940,000 people.
Greene King’s chief executive, Nick Mackenzie, said the energy bill shock came just as the sector was recovering from the devastation of the Covid-19 lockdowns, which hit hospitality particularly hard and left many with crippling debts.
“While the government has implemented measures to assist households in dealing with this price increase, businesses are left to deal with it on their own, and it is only going to get worse come the autumn,” Mackenzie said.
“Without immediate government intervention to support the sector, we risk pubs being unable to pay their bills, jobs being lost, and beloved locals across the country being forced to close their doors, implying that all the good work done to keep pubs open during the pandemic could be for naught.”
Kevin Georgel, his counterpart at St Austell Brewery, stated that thousands of pubs may be forced to close their doors for good.
Chris Jowsey, the chief executive of Admiral Taverns, said the impact was frightening. He said: “One of our licensees reluctantly gave notice to leave his pub after the cost of electricity increased by 450%, making it impossible to trade profitably. Let’s not forget that for most licensees the pub is not just their business but also their family home.”
Unlike households, bars and other small companies often purchase energy from suppliers through long-term fixed-price contracts, which are frequently renewed at this time of year for an October start date.
Some customers have stated that their supplier is no longer prepared to issue a fixed-rate contract to hospitality businesses because they are afraid the customer would fail. This forces them to accept “deemed” out-of-contract rates, which might skyrocket in pace with wholesale markets.
Other pubs have reported being advised by their supplier that a £10,000 deposit is required if they want a contract or obtaining quotations that show a sixfold increase in their energy expenses!
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