Box C: Gas prices and price controls

Paul Mortimer-Lee and Urvish Patel ()

National Institute UK Economic Outlook, 2022, issue 5, 24-26

Abstract: Inflation in the UK has surged to levels not seen since the 1980s and there is a danger of inflation expectations becoming unanchored. Higher interest rates are the conventional response to an upward shock to the price level if this is expected to have second-round effects. However, interest rates take twelve to eighteen months to influence inflation. So, are there other means to influence the outcome sooner? There have been suggestions of price controls in the US (Weber, 2021) and there is pressure in the UK to temper the effects of rises in the price of household gas, including perhaps staggering price increases (Morales and Morrison, 2022). We used our econometric model, NiGEM, to address the issue in the context of Ofgem's recent decision whether to raise the gas price cap by up to 50 per cent for households in April or to stagger it over the future.

Date: 2022
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