INFLATION could reach 18.6 per cent by January 2023, economists at Citigroup have warned. 

The forecast is far more pessimistic than the Bank of England’s prediction of 13% by the end of the year. 

It would be the highest level for nearly half a century. 

In their report this morning, the investment bank predicted that the retail energy price cap - currently set at £1,971 a year -  would be raised to £3,707 in October before reaching £4,567 in January and then £5,816 in April.

Benjamin Nabarro, chief UK economist at Citi said: “We now expect CPI inflation to peak at over 18 per cent in January.”

He said the forecasts had taken account of a 25% hike in wholesale gas prices last week and a 7% rise in wholesale electricity prices.

“Even with the economy softening, last week’s data reaffirmed the continued risk of pass through from headline inflation into wage and domestic price setting could accelerate,” he said.

Last week, the Office for National Statistics revealed the Consumer Prices Index (CPI) had risen to 10.1% in the 12 months to July, up from 9.4% in June and remaining at the highest level since February 1982.

Increased food costs were the biggest driver of the latest hike, with annual inflation for these items now running at 12.7%, up from 9.8% in June, fuelled largely by price rises for basics such as bread, milk, cheese and eggs.