Is inflation close to peaking? If Citi’s latest forecast is to be believed, the answer is a resounding no.
Economists at the American investment bank expect inflation to reach 18.6 per cent in January, dwarfing the Bank of England’s most recent estimate of 13.3 per cent.
Citi’s is at the pessimistic end of a range of inflation forecasts, but Goldman Sachs and EY also believe the Bank is undershooting.
Citi’s forecast derives from its expectations about the energy price cap, which is set to rise on Friday. But consumers are already bracing themselves for two more cap hikes in January and April. Consultancy Auxilione has said the typical bill could reach a nightmarish £6,000 by the spring, meaning bills would have increased five-fold in a year.
Greg Jackson, CEO of energy supplier Octopus, put things into context this morning – if the price of beer had risen at the same rate as gas, a pint would now cost £25.
Because the energy crisis is global, the UK isn’t alone in being battered by sky-high prices. Eurozone and US inflation is running at a red-hot 8.6 per cent and 8.5 per cent respectively. But Citi says the UK’s price cap rises will see inflation “entering the stratosphere”.
At the same time, strikes are grinding the country’s vital infrastructure to a halt. Nearly 2,000 Unite union members have walked out from Felixstowe port in Suffolk, the UK’s largest container port which handles nearly half of the country’s shipping container trade.
Today is the first of eight days of industrial action after workers rejected a 7 per cent pay rise and £500 bonus. Unite says the pay offer is “significantly below” the rate of inflation but the port insists it is a “very respectable offer”.
Brexit and Covid-related bottlenecks have already inflated the price of transporting products from A to B. This latest walkout is expected to hamper the delivery of hundreds of millions of pounds worth of goods. James Hookham, director of Global Shippers Forum, says a prolonged strike “has the potential to disrupt the UK’s consumer supply chains at a critical period”.
Diverting freight traffic to other ports isn’t feasible, says Hookham: “These containers are moving aboard some of the biggest ships in the world – think Ever Given – and are moving in such numbers and frequency that other routes or transport modes (overland by rail from China to Europe, or by air cargo) simply don’t have the capacity to handle these numbers, at such short notice.”
Edward Sweeney, professor of logistics and supply chain management at Heriott Watt University, says focusing on the impact of rail strikes on passengers misses the bigger picture: “Freight transportation has also been impacted,” he says. “Not least because large parts of the UK’s transport infrastructure are shared by passenger and freight systems.”
The justice system, too, is wobbling. Criminal barristers in England and Wales have voted to go on an all-out strike from 5 September, the day the next PM is announced.
Barristers say the government’s offer of a 15 per cent pay rise ignores a decade of measly legal aid rates. Their placards read: “Crime doesn’t pay”.
Courts are already dealing with a 59,000-case Covid backlog. This latest walk-out will means the queue will become longer and longer.
Dame Vera Baird, the victims’ commissioner for England and Wales, and a former solicitor-general, says: “The cost to society to having no resolution to serious cases is immense,” and that the “endemic underfunding” of the courts dates from well before the pandemic.
It’s a perfect storm, one that may dash hopes of a political honeymoon for the next PM before their first day on the job.
A cold, cloudy, windless winter will be high up on Vladimir Putin’s Christmas list.