As the year draws to a close, there might finally be some hope on the horizon for the economy. For the first time in 17 months, inflation has fallen in the Eurozone, sparking optimism in some that we might be seeing the end of the biggest global price surge in recent history.
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Experts hope the recent slowdown in energy prices will ease the pressure central banks throughout Europe have been feeling to increase rates as aggressively as they have been in response to inflation.
In November, inflation fell more than expected to 10%, down from 10.6% in October, according to the EU’s statistics agency. Before the figures were released, exports were predicting inflation to hit 10.4%, but with this performance, many expect that the European Central Bank (ECB) will adjust their plan and reduce the interest rate hike that they’re planning for next month.
This decrease comes amid signs that inflation has finally peaked as wholesale energy prices and food costs are also declining. Across the Atlantic, US consumer price inflation has also been steadily declining. The hope is that the Bank of England will fall in line with European banks and follow the path they have set out, as long as the price growth in the UK starts to fall accordingly as well.
The expectation from the ECB is that the next interest rate hike will only by .5 percentage points as opposed to the previous two hikes of .75 percentage points. The biggest factor affecting this predicted change is energy prices, with a reported growth of 34.9% in November, down from 41.5% the previous month. The price growth drop was so steep, it seemed to offset a slight rise in food, alcohol and tobacco, and services inflation.
With some pressure easing, economists are optimistic that the knock-on effects will begin and that other major economies will experience the same impact.
Of course, there are no guarantees, so be sure to keep an eye on inflation and the performance of the UK economy before making any financial decisions. For guidance and support, be sure to get in touch with your financial adviser today.