There was a welter of downbeat economic news from around the world yesterday.

Analysts predict that rising energy prices could push UK inflation above 18% next year - the highest rate in nearly 50 years.

Inflation reached 10.1% in July, five times the Bank of England's (BoE) target.

Investment bank Citi now says that inflation was "entering the stratosphere" and could rise to 18%, while the Resolution Foundation said it could go to 18.3%.

The BoE has predicted inflation will rise to more than 13% in the coming months.

The BBC says Citi's forecast would be the UK's highest rate of inflation since 1976.

Meanwhile, the euro tumbled back below dollar parity to hit a 20-year low and sterling slipped to its worst level in two years as traders were panicked by the further surge in gas prices on Monday.

Euro slump

The euro slumped 1.1% against the dollar in afternoon trade to hit $0.9928 - its lowest since 2002. Earlier today, one euro was worth $0.99.

Sterling yesterday dropped as much as 0.7% to $1.1742, a level last reached at the start of the pandemic. This morning saw the pound worth $1.18.

Stock markets also sold off on mounting recession fears, with eurozone blue-chip shares plunging almost 2% and the FTSE 100 dropping 0.22% to 7,533.

In America, the tech-focused Nasdaq fell 2.55%, the broader S&P 500 was down 2.14% and the Dow Jones dipped 1.91%.

Jefferies analyst Brad Bechtel told the Telegraph: “The euro and the pound are both in the same boat when it comes to gas, inflation (and) growth challenges.”

Both currencies have been battered this year by fears of the cost-of-living crisis triggering a recession.

The euro and pound have each lost more than 12% of their value against the dollar in 2022 amid fears of energy shortages this winter.

Recession risk in Europe

Jordan Rochester, a currency analyst at Nomura, warned the euro could come under more pressure on currency markets, and risks falling lower over winter as markets are “not pricing this recession risk properly”.

He added: “There has been a significant clean out of euro shorts since parity was reached, governments are starting to share higher energy costs with consumers, and firms will have to start slowly curtailing production, while supply lines are being hit by a lack of transport options on the lower water levels on the river Rhine.”

Brent crude futures were 0.55% higher at $97.08 a barrel earlier today.

FTSE 100

The UK’s top share index, the FTSE 100, was down 25 points at 7,508 shortly after opening this morning after yesterday’s 16-point drop.

Companies reporting today

  • Half-year results: Wood

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