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* UK inflation heading for 6% or more in April
* Bank of England watching longer-term outlook
* Surging gas prices main factor behind inflation jump
* Households facing income hit from tax hike too
* Some early signs of pressure for higher pay
By William Schomberg
LONDON, Jan 17 (Reuters) - British consumer price inflation
looks set to hit a 30-year high of 6% or more in April, but the
big question for the Bank of England and the wider public is how
quickly it will then fall back.
The BoE last month became the world's first major central
bank to raise interest rates since the coronavirus pandemic
hammered the global economy.
Now investors are betting on as many as four more rate hikes
in 2022, taking Bank Rate as high as 1.25%, because the rise in
prices in Britain - as in many other rich economies - looks set
to be less transitory than previously hoped.
The inflation peak will hit the spending power of consumers
just as they face a tax hike in April, challenging Britain's
economic recovery from its coronavirus crash of 2020.
Bethany Beckett, an economist with Capital Economics, said
household disposable income will fall in real terms this year,
contributing to a slowdown in economic growth to 3.7% in 2022.
The BoE in November predicted 5.0% growth this year.
HOW LONG IS INFLATION LIKELY TO STAY HIGH?
The BoE's current forecasts, published in November, point to
consumer price inflation of 3.5% in 2022 before a fall to 2.25%
in 2023, close to the BoE's 2% target.
Then, after gas prices rose further, the central bank said
in December it had raised its estimate for the peak in inflation
to about 6% in April.
That means the BoE is likely to push up its full-year
inflation forecasts again on Feb. 3, alongside what many
investors think will be another rise in Bank Rate to 0.5%.
Households face a sharp increase of about 50% in their gas
bills - or a bit less if the government moves to lessen the hit
- in April, when a regulated price cap is due to be increased.
Paul Dales, chief UK economist at consultancy Capital
Economics, has almost doubled his inflation forecast for 2022 as
a whole to 4.0% from a previous estimate of 2.2%.
WHAT IS GOING ON WITH GAS PRICES?
After their surge, gas prices have fallen recently.
Britain is set to receive a record number of liquefied
natural gas cargoes this month, helping to bring the day-ahead
natural gas price down from a peak of more than 450 pence a
therm in late December down to about 200 pence last week,
although that was still much higher than its level of about 50
pence a year ago.
Philip Shaw, an economist with bank Investec, said inflation
in 2022 could end up at 2.5% if the recent fall in gas prices
continues and leads to a cut in tariffs at a twice-yearly review
by regulators due in October.
WHAT ELSE IS DRIVING UK INFLATION?
As well as the usual variables, from petrol prices to the
impact of weather of food costs, another key factor for
inflation this year is what happens to global supply chains,
which were hit hard by the pandemic.
This has been seen most starkly in the car market, where a
shortage of microchips has curtailed production of new cars,
pushing the price of second-hand models up by 27%.
However, a survey of purchasing managers at British
manufacturers last month showed an easing of prices paid for
inputs from near record highs.
But analysts are watching for the impact of the Omicron
variant in China where a strict approach to stamping out
coronavirus outbreaks led to the shutdown of suppliers vital for
global manufacturers in 2020, pushing up prices.
IS A WAGE-INFLATION SPIRAL LIKELY?
The BoE's main concern is not so much about what inflation
does in the coming months but whether it triggers longer-term
inflationary pressures, principally in wage settlements.
Some companies have responded to a post-Brexit, post-COVID
shortage of workers by pushing up pay for some roles.
Food retailer Gregg's this month brought forward a
pay rise for its staff.
A survey of manufacturers showed recent pay increases ranged
between 2% and 3% but went as high as 14% in some cases, while
45% of firms had yet to agree a pay deal as they awaited more
clarity on inflation and other factors.
(Writing by William Schomberg; Editing by Hugh Lawson)
