The spillover impact of Russia ramping up its assault on Ukraine on energy prices will send the cost of living in the UK to a level not seen in a generation, reveal fresh forecasts by top City analysts.
Fears over Moscow squeezing oil and gas flows in retaliation to Western sanctions has pushed energy prices dangerously close to record highs, leading to inflation in Britain peaking at 9.5 per cent, according to Goldman Sachs.
Natural gas prices doubled yesterday from Monday’s rates, hitting £4.54 per therm, while Brent Crude, the international oil barometer, topped $113 per barrel for the first time in nearly a decade.
Those elevated energy prices could result in a 55 per cent hike to the energy price cap in October, taking annual energy bills above £3,000 for most households, Goldman warned.
The cap will already rise 54 per cent in April, underlining the severity of the cost of living crunch already biting Brits.
The additional cap rise will hoist inflation to a rate not seen in Britain since 1990.
Goldman said the Bank of England will look through the energy shock and send interest rates to 1.75 per cent by November as it continues to flex its inflation fighting muscles despite the conflict in the East.
Consumers are certain to slash spending in the face of intense pressure on their living standards, sparking concern over whether the UK’s economic recovery from the Covid-19 crisis will run out of steam this year.
“We expect the high inflation to lead to cost-of-living pressures and weigh on growth over the course of this year,” analysts at Goldman said.
Under previous forecasts by the Bank of England projecting an inflation peak of 7.25 per cent this April, UK living standards were already expected to fall at the steepest rate since the 1940s.
If Goldman’s projections materialise, the hit to households’ spending power will be substantially worse.
The warning came as fellow banking giant JP Morgan said rampant inflation will cause economic growth to “slow to a crawl”.
Although Britain is much less reliant on Russia for energy supplies than Europe, the cost of securing oil and gas is set in energy markets on the Continent, meaning the UK will almost certainly have to pay more for inventories.
Petrol prices are already running at the highest rate on record.