Inflation could rise to 22% in the UK if gas prices fail to drop, Goldman Sachs warns

Tory leadership hopeful Liz Truss (pictured) has faced criticism over her economic plans  (PA Wire)
Tory leadership hopeful Liz Truss (pictured) has faced criticism over her economic plans (PA Wire)

Inflation could surge to more than 20 per cent in Britain if gas prices fail to drop, Goldman Sachs has warned.

Inflation is at 10 per cent and tipped to increase months after the price cap rises from £1,971 to £3,549 on October 1.

Experts have warned millions of households could be plunged into fuel poverty unless the government intervenes.

"In a scenario where gas prices remain elevated at current levels, we would expect the price cap to increase by over 80% in January (vs 19% assumed in our baseline)," Goldman economists said in a research note.

"(This) would imply headline inflation peaking at 22.4%, well above our baseline forecast of 14.8%."

Last week, economists from Citi said consumer price inflation was to set to peak at 18.6 per cent in January – more than nine times greater than the Bank of England’s target.

 (Press Association Images)
(Press Association Images)

It comes after a top economist warned that Tory leadership frontrunner Liz Truss’ proposed tax cuts worth tens of billions of pounds are not the answer as they would crash public finances.

Economist Paul Johnson of the Institute for Fiscal Studies rubbished Truss’s tax-cutting plans. He said: "You clearly can’t do all of this without completely crashing the public finances. This simplistic mantra that you cut taxes and the economy grows more, that you cut taxes when you have a big deficit and high quite worrying."

Former Labour chancellor Alistair Darling has warned that rocketing inflation and a looming recession could create a lethal cocktail for the economy without an urgent government response to soaring bills.

With the new Tory leader due to be announced next Monday and installed in No10 the following day, Lord Darling urged immediate measures before the new energy price cap kicks in.

The Labour peer, who led the Treasury through the 2007/8 financial crisis, said: "You need something significant and substantial and you need it now, because people’s bills are going to start coming in in a few weeks’ time.

"If you don’t do that you have the risk...that the economy will slip into recession. And when you’ve got that on top of inflation already at very, very high levels we haven’t seen since the 1970s it’s a lethal cocktail.

"It needs bold action by the Government now, not fiddling around with small measures that won’t make any difference."