Eye-watering UK inflation forecast warns of difficult start to 2023

interactive investor comments on the latest outlook from Citigroup’s chief economist.

With inflation still firmly in the economic spotlight, a new forecast from Citigroup’s chief economist Benjamin Nabarro makes for a worrying read – stating that there will be even more trouble ahead for the UK, especially when we come into the new year.

Explaining the significance of Citigroup’s gloomy forecast, Victoria Scholar, Head of Investment, interactive investor, says: “Citigroup has said UK inflation is now ‘entering the stratosphere’ and is likely to peak above 18% at the start of 2023. 

“We have been inundated with more and more inflationary figures so far this year, so to bring the latest outlook from Citigroup into context, this 18.6% figure at the start of next year would be higher than the peak in 1979 - when CPI (Consumer Price Index) hit 17.8% following the OPEC (Organisation of the Petroleum Exporting Countries) oil shock. 

“However, Citigroup’s forecast comes at a time when price levels have already been surging - moving into double digits in the latest reading for July, ahead of analysts’ expectations.”

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Scholar adds: “The rise in gas and food prices look set to push price levels higher, as the Bank of England’s interest rate increases, so far, seem to be doing little to offset supply side inflationary pressures imported from abroad.

“In addition, supply chain bottlenecks, the war in Ukraine, as well as Brexit, have all contributed to the post-pandemic revival in inflation. 

“Recession is almost an inevitability at this stage - with record low consumer confidence, the latest GDP figures pointing to a contraction, and now these fresh eye-watering inflation forecasts.”

Myron Jobson, Senior Personal Finance Analyst, interactive investor, adds: “The bitter winter for personal finances is set to hit sub-zero by the end of January if the prediction of inflation just shy of 19% comes to fruition. 

“Double-digit inflation is a difficult pill to swallow for consumers as it is, but inflation soaring to 18.6% would be unimaginable for personal finances – particularly after the festive break, when household budgets are leaner post-Christmas.

“There are not enough tools in the personal finance box of tips to shield those living on a bare-bone budget from rising prices. The benefits of shopping around for the cheapest deals is diluted when prices are rising across the board, however, it is still very worthwhile.  

“The harsh reality is that many more UK households could face financial breaking point without meaningful intervention.”

Investors stick to their wealth preservation strategies 

Within this inflationary environment, we can see that investment trust investors continue to flock to capital preservation, inflation-busting, strategies via Capital Gearing, Personal Assets, and Ruffer, for example.

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