Falling gas prices could lower inflation and speed economic recovery, CEBR says

Falling energy prices will reduce inflation, reduce peak borrowing costs and boost economic recovery later this year, a new report says.

An exceptionally warm winter in Western Europe means gas prices – now about £1.80 per therm – are lower than they were before Russia’s invasion of Ukraine nearly a year ago.

Demand is also about one-fifth lower than expected, as cash-strapped consumers reduce their energy consumption.

In a report due tomorrow, the Center for Economic and Business Research (CEBR) estimates there will be “significant” economic impacts if gas prices continue to fall as predicted.

The Consumer Price Index, which is currently over 10 percent, could fall three percentage points more than expected.

“This would greatly assist the Bank of England in reducing inflationary pressures and could lead to a lower interest rate spike and less collateral damage in the economy,” the CEBR said.

Interest rates, currently at 3.5 percent, are expected to reach 4.5 percent later this year before falling back.

The effect of lower gas prices may be too late to stave off a technical recession, but “should boost the expected economic recovery in the second half of the year,” the CEBR said.

Traders are betting that gas prices will fall to around £1.50 per therm by January next year, which would mean that the energy price cap will no longer cost the government anything.

Had prices remained high, the planned increase in the Energy Price Guarantee from £2,500 to £3,000 for an average household would have cost the Treasury £13bn in the next financial year.

The CEBR said the government could use this windfall to address the country’s pressing problems, including “an imploding health system.”