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Inflation will be plunged to nearly 2%.

 Cit­ig­roup has fore­cast that infla­tion will plunge from double-digit rates to nearly 2 per cent by the end

Index

of the year as rapid falls in gas prices give Rishi Sunak’s gov­ern­ment hope of solv­ing some of its biggest eco­nomic chal­lenges.

Citi said yes­ter­day that con­sumer price infla­tion was likely to fall to 2.3 per cent in Novem­ber, well below the Bank of Eng­land’s fore­cast that it would remain near 4 per cent in the fourth quarter of the year.

The bank’s pro­jec­tion provides a fil­lip for the prime min­is­ter, poten­tially mak­ing it easier to resolve pub­lic sec­tor strikes over pay and to ful­fil his pledge of halv­ing infla­tion by the end of the year. Only a month ago, he expec­ted that to hap­pen in Octo­ber.

Citi’s fore­casts reflect a likely fall in house­hold energy bills as whole­sale gas prices con­tinue to drop. The cost of gas for deliv­ery in Septem­ber has halved in the past two months from £2.60 a therm to £1.26 a therm and fallen more than 80 per cent since its peak last August.

These falls will trans­late into a lower energy price cap in the fourth quarter of this year from £3,295 for a house­hold with aver­age con­sump­tion of gas and elec­tri­city to £2,161, accord­ing to the latest fore­casts from con­sultancy Corn­wall Insight.

As energy prices fall, the higher weight­ing of gas and elec­tri­city in the index will pull the over­all rate of infla­tion down faster.

In a fur­ther poten­tial boost to the pub­lic fin­ances, Nabarro fore­cast that retail price index infla­tion, which is used to uprate £560bn of infla­tion­linked gov­ern­ment debt, is also likely to fall rap­idly, lim­it­ing the cost of ser­vi­cing this debt.

He expects the RPI or retail price meas­ure of infla­tion to drop from the cur­rent rate of 13.4 per cent to 4.3 per cent in the fourth quarter of this year, well below the Office for Budget Respons­ib­il­ity’s Novem­ber fore­cast of 6.3 per cent towards the end of 2023.

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  1. Paul23 February 2023 at 10:24

    I'm skeptical this will happen. 4-5% by the end of the year would be a good level of inflation. Anything better would be terrific but I doubt it will happen.

    ReplyDelete
    Replies
    1. Nate23 February 2023 at 11:03

      I understand your skepticism. I am hoping for a 3.5% by the end of 2023 and I know that is wishful thinking but I think it's possible.

      Delete

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