UK energy bills jump by 80%. Double-digit inflation is here to stay in the coming months. GBP/USD remains under pressure.
As the UK starts a long weekend, news that millions of households and businesses will face a huge hike in energy bills will only add to fears that the UK economy is looking at a grim few quarters ahead. Government regulator OFGEM announced today that the typical household energy bill will hit GBP3,549 a year in October, an 80% increase from the current energy price cap of GBP1,971. And the situation is set to get a lot worse unless there is strong intervention from the government.
Soaring energy prices are the main driver behind one investment bank’s recent headline-grabbing note that UK inflation may hit eye-watering levels in the coming months. According to Citi economists, UK CPI may hit 18% in January while RPI is seen hitting 21%. Citi expects energy bills in the UK to hit GBP4,567 in January 2023 and GBP5,816 in April.
The new UK government – expected to be announced on September 5 - is going to have to act decisively and fast to temper these massive energy price hikes. Any energy price payments or subsidies will be needed immediately and will add to heightened inflationary fears in the UK. A 50 basis point rate hike is already fully priced in at the next BoE meeting on September 15, and markets are now starting to price in a Bank Rate of 4% next year compared to the current level of 1.75%.
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