Warning UK inflation could hit 20% as recession looms – what could it mean for you?

INFLATION in Britain could be higher than 20 per cent next year if gas prices keep soaring, according to the latest gloomy predictions from economists at Goldman Sachs.

The US bank has said that it expects Brits will suffer another 80 per cent increase in energy costs next year as gas prices continue to climb.

That would be on top of the trebling in average bills to £3,549 in October that is already unaffordable for one in three households.

As a result of these huge energy pressures, Goldman Sachs reckons headline inflation could now peak at 22.4 per cent next year.

As a result, this could trigger a 3.4 decline in gross domestic product.

Inflation refers to the rate that prices are rising.

The costs of goods and services have already risen by 10.1 per cent compared to last year -a 40 year high - as companies have faced higher  wages, ingredients, commodity , transport and energy costs.

Goldman Sach’s grim prediction would mean inflation would be more than ten times higher than the Bank of England’s targeted 2 per cent rate.

And it would be even higher than the Bank’s bearish forecasts at the start of the month that inflation could peak at 13.3 per cent this autumn.

Last week economists at Citi said that inflation could peak at 18.6 per cent.

Goldman Sachs said it expected a recession to start in the UK in October with the economy shrinking by 0.6 per cent next year, less than the 1.5 per cent drop expected by the Bank of England.

The US bank added to a growing chorus of predictions that interest rates will rise by another 50 basis points to 2.25 per cent in September.

At the start of August, the base rate - which impacts the cost of borrowing and mortgages for Brits - was raised by 0.5 percent - the biggest jump in 27 years to 1.75 per cent. 

Parents have been warned that nappy and baby wipe prices have rocketed due to soaring inflation.

What happens when inflation rises?

When inflation is higher it means prices are rising more quickly and so your money won't stretch as far.

Wage are not increasing at the same pace as inflation - which means a "real term" pay cut.

xperts say you should keep your savings in a high-interest savings account when inflation soars. That way, your balance should keep in line with rising prices.

The Bank of England has hiked interest rates for a fifth consecutive time, at 1.25%.

But they are still very low by historical standards meaning savings accounts can't keep up with inflation either.

In order to battle inflation, you should keep an eye out for own-brand food products when you can, as well as seeing what help and funds are available.

For example, the Household Support Fund is there to hand out cash funds and supermarket vouchers to those who need it - it differs depending on which council you're under.

If you're struggling with soaring energy bills, a number of energy firms have hardship funds which offer grants of up to £750 for those struggling with their bills.

If you're feeling helpless, our Squeeze Team is a panel of experts full of tips and advice to help you cut costs.