Press release

17 Nov 2021 London, GB

Inflation rises to a near 10-year high – EY ITEM Club comments

Inflation rose to a near 10-year high in October and is likely to rise further over the remainder of the year. The EY ITEM Club expects inflation to peak next spring, but it should slow significantly in the second half of 2022 and into 2023

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  • Inflation rose to a near 10-year high in October and is likely to rise further over the remainder of the year. The EY ITEM Club expects inflation to peak next spring, but it should slow significantly in the second half of 2022 and into 2023.
  • October’s outturn was higher than the Bank of England anticipated, but this is unlikely to play little role in its near-term policy decision. Whether or not the Monetary Policy Committee rises rates in December will predominantly be down to their view on developments in the labour market.
  • EY ITEM Club Autumn Forecast is published on Monday 22 November.

Martin Beck, senior economic advisor to the EY ITEM Club, says: 

“CPI inflation accelerated from 3.1% in September to 4.2% in October, the highest rate since December 2011. Three factors were largely responsible for October’s large rise – the over 12% increase in the energy price cap, petrol prices rising by 3% between September and October following a significant increase in oil prices, and the VAT rate for the hospitality sector increasing from 5% to 12.5%.

“The EY ITEM Club expects inflation to drift up further over the remainder of this year, as the impact of higher oil prices and supply chain challenges continue to feed through. The CPI measure is then likely to briefly peak next spring, when the impact of the next rise in the energy price cap and the VAT rate for the hospitality sector being restored to 20% go on to affect the index. But each of these factors are temporary in nature and there remains little evidence of any escalation in underlying inflationary pressures. With oil and natural gas prices unlikely to continue rising at recent heated rates, and large negative base effects coming into play, the EY ITEM Club expects CPI inflation to fall below the 2% target by mid-2023.

“Although October’s outturn was higher than the Bank of England’s forecast of 3.9% in November’s Monetary Policy Report, this is unlikely to make much difference to its next policy decision. Whether or not the Monetary Policy Committee moves in December will be determined predominately by whether they’re satisfied that the end of the furlough scheme had a benign impact on the jobs market.”