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Inflation to hit 18%, Bank Rate 7%

ended 23. August 2022

The UK inflation rate is set to peak at a near 50-year-high of 18.6 per cent early next year with energy prices set to soar, investment bank Citi has warned. Citi also said the Bank of England could have to hike interest rates to as much as 7 per cent to get spiralling prices under control. Any thoughts? What will this mean for borrowers and savers/investors?

7 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Citi are completely at odds with the Bank of England in their forecasts and although I don't have a lot of faith in the Bank of England I feel that their predictions are more realistic. Energy does have a big weighting in the 'basket of goods' that make up our inflation rate, but it dictate it. With inflation as high as it has been it has already started to have an impact on our spending habits. Retail sales are down, which will push the cost of items down. This will be reflected in our inflation rate. People have less money in their pockets and a recession is around the corner. This should also filter through to housing costs and rent. This should also mitigate some of the energy rises. I am not saying that inflation won't rise further, nor am I saying it's not going to be painful. I think that a lot would have to go wrong in order for inflation to reach nearly 20% and, as we know from the 1980's, 7% interest rates won't be enough to fix it. Whatever colour government are in power should this dire prediction on inflation come to pass, they could not let interest rates rise that high. There would be mass unemployment, a huge rise in homeless and strikes that will cripple the economy. The government might use taxes to curb spending and allow the Bank of England to keep rates low.
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Rob Peters
Principal at Simple Fast Mortgage
Wages need to rise. Wages are not currently linked to inflation, and neither is consumer spending. Current inflation is purely driven by energy costs and the price of commodities. People aren't spending more, it's just costing more to live. It's an falsely inflated miscommunicated nonsense and the sooner these two key issues are acknowledged and addressed the better off we will all be.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
No increase to base rate is going to stop the runaway rise in energy prices. Surely now the government has no other option but freeze the energy cap? Industry leaders and the opposition seem to be putting forward some viable ideas to tackle the cost of living crisis but the jury is out on whether the government is prepared to listen.
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Fanny Snaith
Owner at Fanny Snaith - Certified Money Coach
I slap my forehead with disbelief. People will not pay their energy bills because they won't have the money in the bank - not because they don't want to. Raising interest rates much higher will result in people not being able to pay their mortgage because they don't have the funds. When, oh when will the powers that be realise that the current economic sums don't add up and using historic ways of "fixing" the situation won't work?
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Jonathan Burridge
Founding Adviser at We Are Money
Lets all stop and take a breath. We have seen so many predictions proved to be wrong this could well be just another. We are likely to see prices rise and base rate increase and it is going to be a tough ride for many for a while. If Citi's tea leaf reading is any better than other fortune-tellers and it does come to fruition it will be a very challenging environment for anyone reviewing their borrowing or on a variable rate.
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Carl Roberts
Chartered Financial Planning and Managing Director at RTS Financial Planning
Another day, another forecast on inflation. The last 4 forecasts from the Bank of England have been wrong and I don't expect this latest one from Citi will be accurate. It's impossible to predict the future with accuracy so we need to take these forecasts with a pinch of salt. Unfortunately there have always been and will always be periods of higher inflation and subsequently higher interest rates it's just the natural economic cycle. The causes of it will be something different and never fully understood until after the period passes. This period WILL pass, you just need to ensure you always have a rainy day fund and have a long term financial plan in place.
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Graham Cox
Director at Bridging Hub
The folly of years of ultra-loose monetary policy is coming home to roost. If Putin turns off the gas supplies to Europe this winter, it's possible rates could go to 7%, but I think it's unlikely. It would devastate the economy, property repossessions would go through the roof and house prices would collapse. Long-suffering savers would finally get a decent interest rate, though if inflation hits 18%, savings are still going to be massively eroded in real terms. Incredibly low mortgage rates were the only reason buyers could 'afford' to purchase a home at today's over-inflated prices. Now rates are rising, expect prices to fall.