An economist at the US-based Citibank has warned investors that UK inflation could top 18 percent early next year.
Benjamin Nabarro predicted that the Consumer Price Index (CPI) rate would hit 18 percent early next year, with the Retail Price Index (RPI) reaching 20 per cent.
In his note to the bank's investor clients, he said that forecast depended on what action the next British prime minister, set to be announced on September 5, would take to reduce the price rises stemming from the UK's embargo on Russian energy imports.
"The question now is what policy may do to offset the impact on both inflation and the real economy," Nabarro wrote.
Foreign Secretary Liz Truss, one of the most hawkish proponents of support for Ukraine in its conflict with Russia, is the current favourite to succeed Boris Johnson as leader of the Conservative Party and the government.
Nabarro said her pledge to cut taxes but not offer further relief payments to households would only have a limited effect.
And he said the Bank of England, which raised interest from 1.25 percent to 1.75 on August 4 in response to expected inflation of 13 percent, would likely choose to push the lending rate far higher.
"This means getting rates well into restrictive territory, and quickly," Nabarro said. "Should signs of more embedded inflation emerge, we think Bank Rate of 6-7 percent will be required to bring inflation dynamics under control. For now though, we continue to think evidence for such effects are limited with increases in unemployment still more likely to allow the MPC to pause around the turn of the year."
The last time CPI inflation stood above 18 percent in the UK was in 1976, after the Middle East oil crisis of 1973 and the British coalminers' strikes of 1972 and 1974 prompted electricity rationing to businesses.