UK not alone as EU hit by inflation surge as European Central Bank holds firm on rates

Investment expert on the high annual inflation rate

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The figure is similar to the UK where the Office for National Statistics today revealed inflation had climbed to a 10 year high of 4.2 percent. Richard Carter, head of fixed income research at Quilter Cheviot commented: “Price increases are running at broadly similar levels to those seen in the UK. Unsurprisingly, Eurozone inflation is being driven by the same factors pushing up prices in the UK. Specifically, higher energy costs as well as a jump in the price of cars and household goods.”

Like the UK the ECB has a target of 2 percent for inflation.

However, unlike the UK central bank policy seems much more set on not acting on inflation by raising interest rates.

Although the Bank of England voted to hold interest rates at 0.1 percent this month expectation has grown considerably that it will begin raising rates in the coming months.

Speaking to Express.co.uk former Bank of England Monetary Policy Committee member Andrew Sentance said he expected interest rates to rise to one or two percent next year.

Meanwhile, the European Central Bank has remained dismissive with president Christine Lagarde saying on Monday she believed tightening policy would choke recovery.

Mr Carter said: “The narrative from the ECB has been starkly different from that of the Bank of England.

“The ECB is holding firm in its belief that most of the inflationary pressures are transitory and unlikely to lead to widespread wage increases.

“As a result, the ECB may well scale back their pandemic QE program early next year, but rate hikes still look a long way off, unlike in the UK.”

The expectation of a rate rise has boosted the Pound which is now trading at 1.19 against the Euro, up from 1.17 at the start of the week.

Mr Sentance said he believed the ECB would eventually start raising rates.

“I think we’re starting a global interest rate cycle and we should see action in the States as well” he said explaining similar action was also expected from US central bank the Federal Reserve.

“We should expect there to be some sort of peak in inflation at some point, probably in the first half of next year, but not then necessarily coming down to the two percent figure very rapidly and that’s what the MPC and the Fed and the ECB need to be thinking about and preparing for.”

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Inflation in the US is currently at 6.2 percent.

Interest rates will next be reviewed in the UK on December 16 with an ECB decision on rates on the same day.

If the UK takes the lead on raising rates first it could provide a major boost to the pound against the Euro.

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