UK inflation projected to hit 18.6% as gas prices surge

Surging wholesale gas prices are putting the UK on a path to exceed 18 per cent inflation next year, the highest rate among larger western economies, according to a report from Citigroup.

The bank’s projection heaps more pressure on candidates for the Conservative leadership to address a worsening cost of living crisis and came as UK gas prices for next-day delivery surged as much as 33 per cent.

Rapidly increasing prices for natural gas have left economic projections out of date. At the start of the month, the Bank of England forecast that higher gas prices would push inflation above 13 per cent towards the end of this year.

Bank of America said last week that it expected UK consumer price inflation to peak at 14 per cent in January, while Goldman Sachs and EY projected it to hit 15 per cent.

But with Europe’s gas crisis escalating in August, Citi predicted on Monday that inflation would reach 18.6 per cent in January.

Continental European gas prices are more than 14 times their average of the past decade. The benchmark European gas price rallied almost 10 per cent on Monday to €278 per megawatt hour ($81 per million British thermal units), the highest closing price on record and taking the rise over August to 45 per cent.

Examining the wholesale figures, Citi predicted that the UK’s retail energy price cap — which limits how much households pay for heating and electricity — would be raised to £4,567 in January and then £5,816 in April, compared with…