(Bloomberg) —

An economist from Goldman Sachs Group Inc. says that inflation will impact the U.K. more severely than in Europe.

While sanctions against Russia will hurt Europe’s economy more, the impact of rising prices on spending power probably will be “more stark” because of the way energy bills are regulated, said Steffan Ball, chief U.K. economist for the investment bank. After lifting a ceiling on the charges utilities could charge, consumers will see their electricity and natural gas bills rise by 54% each month.

While newspapers report the poorest households may have to choose between “eating and heating” later this year, those on middle and upper middle income probably can rely on savings accumulated during the pandemic, Ball said.

These remarks were made prior to data showing that U.K. inflation rose to a 30 year high of 7.7% in March. This shows the extent of the pressure placed on the Treasury and Bank of England to manage a record-breaking consumer spending squeeze. Since December, the BOE raised interest rates 3 times and could move once more next month.

“They can buffer a shock to their real disposable income and not let it hit their living standards,” Ball said, referring to the more wealthy households. 

The question economists are asking is whether people will want to hoard cash and continue saving money, he said, adding, “It’s hard to think that they won’t be going out to restaurants and things like that.” 

There’s a “clear risk” that Britain will tumble into recession as the surge in inflation curtails household spending, Ball said, noting that a contraction isn’t Goldman’s central forecast.

©2022 Bloomberg L.P.