Proactive Investors - UK inflation will plunge much faster than expected this year, Citigroup has forecast, pointing to a potential sooner pause and reversal on interest rates from the Bank of England.
Based on nosediving natural gas prices, the US bank now sees the consumer price index falling from its current 10.1% to 2.3% by the end of this year.
This is a much faster plummeting than the Bank of England forecast in its update earlier this month, which estimated CPI would drop to "around 4%" by the fourth quarter.
As gas prices fallen more than 80% from last summer's peaks in the wake of the Ukraine invasion, Citi economists now forecast UK CPI will tumble below 5% from July, having previously estimated this would take until October.
On average, economists forecast CPI will be 4.5% in the fourth quarter, according to a Treasury poll this month, down from a 5% forecast last month.
Last week's CPI figures showed headline inflation tick lower due in large part to falling petrol/diesel prices, with core inflation, which excludes fuel and food, also much lower than expected and slipping below 6% for the first time since last June.
Markets still expect the BoE to hike rates in March, though by a lower quarter-point than the half-point rise this month.
Headline CPI ticked lower to 10.1%, which was partly down to a near-4% fall in petrol/diesel prices across January. But Some of this is linked to ongoing disinflation in goods categories, and unsurprising consequences of improving supply chains and lower consumer demand.
Having started to ease towards the end of last year, UK gas prices have halved in the past two months from £2.60 a therm to £1.26 a therm.
Based on this, Cornwall Insight forecast this week that household energy bills will fall by nearly £850 from July.
The cap for April is predicted to hit £3,294 when Ofgem releases the information next Monday, 27 February, though typical households bills will rise to around £3,000 from the current rate of £2,500, due to government support.
In July, the household price cap is forecasted to fall again to £2,153 and then rise in October to £2,161, Cornwall Insight predicted.
Looking overseas, especially at the US Federal Reserve, Citi predicted further interest rates hikes beyond 5%.
WIth global headline inflation running "somewhere in the 6-7% range", well above central bank targets, "it appears that 2023 will be the year when the effects of that hiking cycle more fully play through."
Citi forecast 2.2% growth in the world economy for 2023, up a slight 0.25 basis points on its previous prediction based on China's stronger outlook and expectation that the euro zone economy will not fall into recession. This will still be a 40-year low for global growth.