UK inflation could top 22% next year, warns Goldman Sachs

● UK inflation could top 22% next year if natural gas prices remain elevated in the coming months, Goldman Sachs Group has warned.

The prediction is the latest startling forecast for the crisis unfolding in the UK, with hopes fading that inflation will peak in October.

Goldman’s outlook is even more gloomy than a prediction last week from Citigroup, which sees price gains peaking at 18.6%, well above the 13% figure the Bank of England forecast earlier this month.

In a note this week, written after an upward spiral in gas prices, Goldman economists said if prices stayed at those levels, the UK will be forced to increase its energy cap by a further 80% in January. That would push up inflation to 22.4% and trigger a 3.4% decline in GDP.

Even if energy costs moderate, as predicted by the bank’s commodities analysts, the peak inflation rate will be 14.8% in January, the economists said. That is enough to push the UK into recession.

In a sign of the extreme volatility in power markets, gas prices plunged on Tuesday on signs that the region is stepping up efforts to curb its consumption and build up supplies for winter.

Prices have been volatile amid thin trading and concern about flows from Russia.

Goldman’s call hammers home the scale of the crisis awaiting Britain’s new prime minister, who will be named next week.

Liz Truss and Rishi Sunak, the two candidates vying to replace Boris Johnson, have said they will take prompt action to address the pain for households and businesses.

A later and higher peak for inflation would mean the BOE might need to move more aggressively in raising interest rates. Investors currently expect its key rate to hit 4.25% next year, up from 1.75% now.