UK inflation could climb as high as 15% this winter if sanctions on Russia continue to push up energy prices. economists have warned.
The Consumer Prices Index hit a new 40-year high of 9.4% in June, following surges in food and energy prices.
Economists at accountancy firm Ernst and Young predict that inflation is likely to peak at 11% in the autumn and could climb even higher during the winter months.
Former government adviser Mats Persson, who recently joined EY Parthenon as a partner to work on the policy-led energy transition, told the Times that inflation could hit 15% if Russia shuts off its energy supply to outside markets.
EY economists predict that the pace of inflation will lead to a more intense squeeze on household spending. Its Future Consumer Index found that nearly half of low-income respondents said they felt financially worse off compared to February, and nearly as many expect their financial situation to deteriorate over the coming year.
Since its last report in May, EY ITEM Club has downgraded its forecasts for consumer spending, now expecting consumer spending to rise 4.1% this year despite weakening confidence, but by just 0.8% in 2023.
“Although households are experiencing a significant squeeze, there are factors helping to relieve some of the pressure. Job security provided by unemployment being at a near-50-year low and a candidate-friendly jobs market should give consumers more confidence in saving less and borrowing more," Martin Beck, chief economic advisor to the EY ITEM Club, said in a statement.
"There are some significant risks to growth which could prevent the economy from meeting the [growth] forecast, not least the prospect of further supply shocks, whether in energy markets or the ongoing impact of COVID-19 on supply chain."