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Economic preview: UK and eurozone inflation outlook

By Angela Barnes and Neil Dennis

13:28, 12 November 2021

A gas stove burner on full flame
Rising utility prices are underpinning UK inflation – Image: Shutterstock

Inflation is the main focus again in next week’s economic calendar as the UK and eurozone report on whether price pressures continued to build during October.

While there are no major central banks announcing policy decisions during the week, the Federal Reserve has four of its Open Market Committee members delivering speeches – John C Williams, Christopher J Waller, Richard H Clarida and Charles L Evans.

Investors are likely to be following these closely on Wednesday, Thursday and Friday for any comments on their policy stances, given the dovish U-turn at the FOMC’s last meeting earlier this month.

UK inflation

Data from the Office for National Statistics showed that the UK headline consumer price index rose by annual rate of 3.1% in September, down from 3.2% in August, after significant downward pressure from the hospitality sector – particularly from prices in restaurants and cafes.

Paul Dales, chief UK economist at Capital Economics, described it as “the lull before the storm”, predicting that the 12% rise in utility prices on 1 October would lift CPI inflation to around 3.8% in October, as previously reported by

However, this week the economist said inflation expectations had been revised again.

“We’ve been warning for a while that CPI inflation would rise further than most people expect and have recently pushed our own forecast even higher. We now think CPI inflation will rise from 3.1% in September to 4% in October and to almost 5% by April 2022,” he said.

He added: “But while the prospect of inflation staying higher for longer may prompt the Bank of England to raise interest rates from 0.1% in December, higher inflation would also reduce the real spending power of households and firms.”

Successful vaccine roll-out

The Office for Budget Responsibility (OBR) noted last month how the successful vaccine roll-out has allowed the economy to reopen largely on schedule, despite continuing high numbers of coronavirus cases.

It also noted, however, that soaring energy prices, labour shortages and supply-chain blockages had held back growth, and said it expects that trend to continue in the coming quarters, while also raising prices and putting pressure on wages.

“We expect CPI inflation to reach 4.4% next year, with the risks around that tilted to the upside. News since we closed our forecast would be consistent with inflation peaking at close to 5% next year. And it could hit the highest rate seen in the UK for three decades,” the OBR further predicted.

The BoE still expects the rate of inflation to drop next year as temporary factors such as supply and labour shortages ease, and base effects from the pandemic work their way out of the data.

Dales at Capital Economics agreed, saying that inflation was still expected to “come back down to earth” by the end of next year. He said it underpinned their view that the Bank won’t raise interest rates far next year.

“Indeed, our forecast that rates will reach 0.5% by end-2022 is well below the 1% priced into money markets,” he added.


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Eurozone inflation

The preliminary reading of the headline consumer price index for October two weeks ago showed inflation hit an annual rate of 4.1% in the eurozone, its highest annual rate since July 2008.

Driven by a 23.5% year-on-year rise in energy prices, the European Central Bank maintained that such price pressures remained transitory and that inflation – though still likely to peak at higher levels – will begin to come back down towards its 2% target level over the course of next year.

The ECB has remained dovish on the likelihood of any near- or medium-term rate increases, despite the continued strength in oil and gas prices and the inflationary impact of supply constraints and labour shortages.

Economists do not expect any revisions to the 4.1% annual headline rate reported on 29 October.

Best of the rest

Labour market data from the UK last month showed the rate of unemployment fell to 4.5% in the three months to August from 4.9% in the three months to July. The latest data, published on Tuesday are expected to show the jobless rate held at the 4.5% level in the three months to the end of September.

Inflation watchers will note, however, if UK labour market shortages have had any further impact on wages. In last month’s data, annual growth in average pay including bonuses hit 7.2%, although base effects from last year’s pandemic-related furloughs are expected to have skewed the numbers, the ONS has said.

Jobs data for the third quarter are also published in the eurozone on Tuesday.

Economic highlights 15-19 November


  • UK – Rightmove house price index November
  • China – industrial production October
  • China – retail sales October
  • Japan – industrial production September
  • Eurozone – trade balance September
  • US – Empire state manufacturing index November


  • UK – unemployment rate September
  • eurozone – employment change Q3
  • eurozone – third-quarter GDP
  • US – retail sales October
  • US – industrial production October


  • UK – inflation CPI October
  • eurozone – construction output September


  • eurozone – inflation CPI October
  • US – Philly Fed manufacturing index November


  • UK – GfK consumer confidence November
  • UK – retail sales October
  • UK – public sector net borrowing October
  • eurozone – current account September

Read more: UK economic growth slows in the third quarter

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