Goldman Sachs Warns of Sharp UK Inflation Surge "Could Exceed 22% Early Next Year"

[Photo by EPA Yonhap News]

[Asia Economy Reporter Park Byung-hee] Goldman Sachs has warned that the UK’s consumer price inflation rate could exceed 22% in early next year, Bloomberg reported on the 30th (local time).

Goldman Sachs stated that if natural gas prices remain high over the coming months, the UK’s energy price cap will rise by 80% in January next year, which could push the consumer price inflation rate up to 22.4% and shrink the gross domestic product (GDP) by 3.4%.

As Russia reduced gas supply, the Dutch TTF exchange, which serves as the benchmark for European natural gas prices, closed at a record high of 339.2 euros per megawatt-hour (MWh) on the 26th. It then fell for two consecutive trading days, recording 252.9 euros per MWh on the 30th. However, compared to about 28 euros per MWh a year ago, the price remains nearly ten times higher.

Goldman Sachs also predicted that even if gas prices stabilize somewhat, UK inflation will rise to 14.8% in January next year, pushing the UK economy into recession. Last week, Citigroup forecasted that the UK’s consumer price inflation rate would peak at 18.6% in January next year.

With forecasts suggesting that the UK’s inflation rate could rise to around 20%, there are concerns that the Bank of England (BOE), the central bank, may be underestimating the inflation crisis. The BOE predicted at its monetary policy meeting earlier this month that inflation would peak at 13.3% in the fourth quarter of this year.

As inflationary pressure grows, the next UK prime minister, to be elected on the 5th of next month, is expected to announce household support measures immediately after taking office. Goldman Sachs expects that if Liz Truss, the current Foreign Secretary and a leading candidate for prime minister, assumes office, the government will provide an additional support package worth 30 billion pounds.

The UK’s consumer price inflation rate in July rose to 10.1%, reaching double digits for the first time in 40 years. It was also the first among the Group of Seven (G7) countries to record double-digit inflation.

The sharp rise in natural gas prices has fueled inflation concerns across Europe. There are forecasts that Germany’s inflation rate will also exceed 10%.

On the same day, the German Federal Statistical Office announced that Germany’s consumer price inflation rate rebounded to 7.9% in August after three months. Germany’s inflation rate had peaked at 7.9% in May, the highest since the first oil shock, then fell to 7.6% in June and 7.5% in July.

With the German government’s household support measures in response to the surge in energy prices ending at the end of this month, there are forecasts that inflation in Germany could exceed 10% starting in September.

This content was produced with the assistance of AI translation services.