Inflation in the UK will hit 18% early next year as consumers count the cost of the deepening energy crisis, one of the world’s biggest banks has predicted. The US financial services group Citi said it expected the consumer prices index to breach 18% in the first quarter of 2023, while the retail prices index inflation rate would soar to 21%. Citi’s prediction is significantly higher than previous modelling of the impact of rising costs. Earlier this month the Bank of England said it expected inflation to reach 13% by the end of the year, while the Resolution Foundation thinktank has forecast it could reach as high as 15% by early 2023. The last time UK inflation reached 18% was in 1976 when an oil supply shock ripped through the global economy and left the UK seeking a bailout from the International Monetary Fund. The climbing forecasts have put pressure on the Conservative leadership candidates to say how they would tackle inflation. Liz Truss released a plan to “put the West Midlands at the heart of our economic revival” on Monday night, without mentioning inflation. Rishi Sunak set out his own plans to make the UK a science superpower and to replace the Horizon research programme, from which Britain has been frozen out after Brexit. But his campaign had earlier warned that Truss’s plans for tax cuts could create an “inflation spiral”. Labour said inflation was a global problem but “worse in the UK than elsewhere due to Conservative mismanagement over the past 12 years”. Pat McFadden, the shadow Treasury minister, said: “With each passing day there is a new survey saying energy prices will rise even higher than expected and with them, inflation too. People simply cannot afford the rises projected to hit them in the coming months. That is why Labour has proposed freezing energy bills over the coming winter, saving households £1,000 and protecting them from rocketing prices.” Citi is highly regarded for its economic forecasting, working with the Institute for Fiscal Studies thinktank on its regular “green budget” analysis. Benjamin Nabarro, the chief UK economist at Citi, said its forecasts had been updated after a 25% and 7% rise in UK gas and electricity prices respectively last week. Conditions in the gas market worsened on Monday in response to Russian state-owned operator Gazprom announcing unscheduled maintenance on the Nord Stream 1 gas pipeline into Europe. The price of gas for next-day delivery to the UK shot up 37% to 495p a therm at one point, the highest since March. The month-ahead gas price touched record highs, up 16% to 540p a therm. In Europe, the gas price according to the TTF benchmark rose more than 10% to a high of €290 (£245) a megawatt hour, and in France the year-ahead electricity price surged to more than €800 a megawatt hour, up from just over €100 at the start of the year. Citi predicts typical dual-fuel tariff energy bills will hit £3,717 in October, higher than most forecasts of between £3,500 and £3,700. Ofgem, the energy regulator for Great Britain, will announce the level of the next price cap on Friday. The US bank predicted that the cap would rise to £4,567 in January – about £300 higher than some forecasts – before reaching £5,816 in April. Energy bills have rocketed this year as high wholesale gas prices, in part down to Russia’s invasion of Ukraine, have fed through into bills. The government is examining options to tackle the crisis, including ramping up an existing support package, which gives £400 to every household from October, and a “tariff deficit scheme” pushed by suppliers. Bill Bullen, the chief executive of Utilita, on Monday called for the Conservative party to end its leadership contest early so that the energy crisis could be tackled immediately. Citi said it expected at least a £300 reduction in bills as a result of an anticipated cut to VAT on household energy bills and a suspending of green levies on bills. However, it added: “In reality, any government response to this is likely to involve substantially more fiscal firepower (around £40bn in our view).” Citi analysts said offsetting the energy increase in full would cost £30bn, equivalent to 1.4% GDP, for the next six months. The Labour leader, Keir Starmer, has presented a £29bn plan to freeze bills for six months. Analysts at RBC said global gas traders including Shell would benefit from higher prices, as well as the power station owner Drax and the energy group SSE. On Monday, Europe was due to receive its first cargoes of liquefied natural gas (LNG) from Australia in six years, arriving at the Isle of Grain terminal in Kent. The Attalos gas tanker was poised to bring in LNG for use immediately in the UK as well as export to Europe. Asked about the possibility of blackouts this winter, Downing Street downplayed concerns. A No 10 spokesperson said: “Households, businesses and industry can be confident they will get the electricity and gas that they need over the winter. That’s because we have one of the most reliable and diverse energy systems in the world.” She said consumers should not panic or feel they should cut down on energy use. “These decisions, in terms of energy consumption, remain decisions for individuals. But what I’m saying is that households, businesses and industry can be confident that they will have the electricity and gas that they need.”