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UK Inflation to Fall to Just Above 2% by end of 2023, Citi Says - BLOOMBERG

FEBRUARY 22, 2023

(Bloomberg) -- The UK’s inflation rate will tumble from double digits to close to 2% by the end of 2023 as the slump in gas prices provides welcome relief to households and businesses, according to Citigroup.

Economists at the bank said in a note that consumer-price growth will slow even more sharply than the Bank of England expects, falling to 2.4% in the fourth quarter of 2023 from its current level of 10.1%.

A slump in inflation that sharp would be a major boost to Rishi Sunak’s government, which has made easing the cost-of-living crisis a key pledge. It would also relieve the pressure on the BOE to raise interest rates even further after the most aggressive hiking cycle in three decades.

Citi UK economist Benjamin Nabarro said the changes to its forecasts were driven by “in particular the further selloff in European gas prices.” The effect of the energy-price surge is beginning to fade out of the inflation figures while household gas and electricity bills are expected to fall soon. 

The BOE expects inflation to decline to 4% by the end of the year but some private-sector forecasters are now predicting an even sharper easing in price pressures. The consensus in this month’s Bloomberg survey is for inflation to fall to 3.9% in the fourth quarter, with Pantheon Macroeconomics and Investec also seeing price growth slowing to close to the BOE’s target.

The BOE is mulling a pause in its rate rises amid hopes that inflation in the UK has now peaked. The rate has fallen for three consecutive months after hitting a four-decade high of 11.1% in October.

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