London Daily

Focus on the big picture.
Saturday, Nov 22, 2025

Eurozone inflation hits fresh record, while economy grows robustly

Eurozone inflation hits fresh record, while economy grows robustly

The data will add pressure on the ECB to hike rates by half a percentage point in September.

The eurozone economy showed Friday it's more robust than expected despite ever-raging inflation — raising pressure on the European Central Bank to hike rates more substantially in September.

Eurostat data showed that the eurozone economy grew by 0.7 percent on the quarter, accelerating from 0.5 percent in the first three months of the year and defying expectations of a significant slowdown.

The strong performance was driven by rapid growth in Spain, which grew by 1.1 percent, and Italy, which expanded by 1 percent. In both cases, the service sector — boosted by tourism — was especially healthy.

On the other end of the spectrum was Latvia, where GDP dropped by 1.4 percent, and Lithuania, down 0.4 percent on the quarter.

Output stagnated in the eurozone’s largest economy, Germany, while it expanded by 0.5 percent in France, the eurozone’s second largest economy.

While the overall growth picture is less gloomy than expected, the eurozone is still beset with scorching inflation.

Headline inflation accelerated to 8.9 percent in July, up from 8.6 percent in June. Analyst expectations had seen inflation remaining at or just slightly above the June rate. The primary driver remains energy prices, which were up 39.7 percent on the year, followed by food, alcohol and tobacco, up 9.8 percent.

Of special concern to policymakers is core inflation, which excludes those volatile components and is seen as a gauge for medium-term price developments. It accelerated further from 3.7 percent to 4 percent, or twice the ECB’s price stability target.

"The inflation problem is getting bigger and bigger," said Commerzbank economist Christoph Weil.


September tightening


With inflation turning out persistently higher than expected month after month, the European Central Bank last week decided to raise interest rates by 50 basis points (0.5 percent), more than it had previously flagged. The central bank said it'll lift rates further in September, but it left open whether it would issue another 50-basis-point move or a more conservative 25-basis-point step.

That decision will be determined by incoming data, its policymakers said.

Despite Friday's improved growth figures, the ECB is keenly aware the latest round of data points to a significant slowdown in economic activity ahead, thanks in part to the effects of the ongoing Ukraine war and energy-price shock.

"What we see in the real economy, certainly it is not terribly encouraging," ECB Governing Council member Ignazio Visco told POLITICO earlier this week. "Everything was dismal."

The key flash composite Purchasing Managers Index, for example, showed last week that eurozone business activity contracted in July as both output and new orders fell for the first time since early 2021. Business expectations also point to more pain ahead, having fallen to fresh lows.

Souring growth prospects have already prompted investors to bet the ECB will stop raising rates much earlier than they expected only a few months ago. Weaker growth should help bring down prices over the medium-term and limit the risk of inflation becoming more embedded in the real economy through wage growth.

"With a recession looming and inflation reaching new highs, the question is how the ECB will respond to an economy which is already cooling down," ING economist Bert Colijn said. "Don’t rule out the ECB front-loading hikes. So 50 basis points in September is definitely still on the table."

In an interview with the Estonian paper Postimees released earlier Friday, ECB Vice President Luis de Guindos underscored that inflation worries will trump growth concerns when the central bank sets it policies.

"The main factor that will guide our decisions will be the evolution of inflation," he said.

As Oxford Economics economist Nicola Nobile sees it, Friday's data clearly point in one direction.

"With inflation not showing any signs of cooling off in the short term and with the economic outlook not yet derailing, we expect another 50 [basis point] increase in September from the ECB," she said.

Newsletter

Related Articles

0:00
0:00
Close
Zelenskyy Signals Progress Toward Ending the War: ‘One of the Hardest Moments in History’ (end of his business model?)
U.S. Issues Alert Declaring Venezuelan Airspace a Hazard Due to Escalating Security Conditions
The U.S. State Department Announces That Mass Migration Constitutes an Existential Threat to Western Civilization and Undermines the Stability of Key American Allies
Students Challenge AI-Driven Teaching at University of Staffordshire
Pikeville Medical Center Partners with UK’s Golisano Children’s Network to Expand Pediatric Care
Germany, France and UK Confirm Full Support for Ukraine in US-Backed Security Plan
UK Low-Traffic Neighbourhoods Face Rising Backlash as Pandemic Schemes Unravel
UK Records Coldest Night of Autumn as Sub-Zero Conditions Sweep the Country
UK at Risk of Losing International Doctors as Workforce Exodus Grows, Regulator Warns
ASU Launches ASU London, Extending Its Innovation Brand to the UK Education Market
UK Prime Minister Keir Starmer to Visit China in January as Diplomatic Reset Accelerates
Google Launches Voluntary Buyouts for UK Staff Amid AI-Driven Company Realignment
UK braces for freezing snap as snow and ice warnings escalate
Majority of UK Novelists Fear AI Could Displace Their Work, Cambridge Study Finds
UK's Carrier Strike Group Achieves Full Operational Capability During NATO Drill in Mediterranean
Trump and Mamdani to Meet at the White House: “The Communist Asked”
Nvidia Again Beats Forecasts, Shares Jump in After-Hours Trading
Wintry Conditions Persist Along UK Coasts After Up to Seven Centimetres of Snow
UK Inflation Eases to 3.6 % in October, Opening Door for Rate Cut
UK Accelerates Munitions Factory Build-Out to Reinforce Warfighting Readiness
UK Consumer Optimism Plunges Ahead of November Budget
A Decade of Innovation Stagnation at Apple: The Cook Era Critique
Caribbean Reparations Commission Seeks ‘Mutually Beneficial’ Justice from UK
EU Insists UK Must Contribute Financially for Access to Electricity Market and Broader Ties
UK to Outlaw Live-Event Ticket Resales Above Face Value
President Donald Trump Hosts Saudi Crown Prince Mohammed bin Salman at White House to Seal Major Defence and Investment Deals
German Entertainment Icons Alice and Ellen Kessler Die Together at Age 89
UK Unveils Sweeping Asylum Reforms with 20-Year Settlement Wait and Conditional Status
UK Orders Twitter Hacker to Repay £4.1 Million Following 2020 High-Profile Breach
Popeyes UK Eyes Century Mark as Fried-Chicken Chain Accelerates Roll-out
Two-thirds of UK nurses report working while unwell amid staffing crisis
Britain to Reform Human-Rights Laws in Sweeping Asylum Policy Overhaul
Nearly Half of Job Losses Under Labour Government Affect UK Youth
UK Chancellor Reeves Eyes High-Value Home Levy in Budget to Raise Tens of Billions
UK Urges Poland to Choose Swedish Submarines in Multi-Billion € Defence Bid
US Border Czar Tom Homan Declares UK No Longer a ‘Friend’ Amid Intelligence Rift
UK Announces Reversal of Income Tax Hike Plans Ahead of Budget
Starmer Faces Mounting Turmoil as Leaked Briefings Ignite Leadership Plot Rumours
UK Commentator Sami Hamdi Returns Home After US Visa Revocation and Detention
UK Eyes Denmark-Style Asylum Rules in Major Migration Shift
UK Signals Intelligence Freeze Amid US Maritime Drug-Strike Campaign
TikTok Awards UK & Ireland 2025 Celebrates Top Creators Including Max Klymenko as Creator of the Year
UK Growth Nearly Stalls at 0.1% in Q3 as Cyberattack Halts Car Production
Apple Denied Permission to Appeal UK App Store Ruling, Faces Over £1bn Liability
UK Chooses Wylfa for First Small Modular Reactors, Drawing Sharp U.S. Objection
Starmer Faces Growing Labour Backlash as Briefing Sparks Authority Crisis
Reform UK Withdraws from BBC Documentary Amid Legal Storm Over Trump Speech Edit
UK Prime Minister Attempts to Reassert Authority Amid Internal Labour Leadership Drama
UK Upholds Firm Rules on Stablecoins to Shield Financial System
Brussels Divided as UK-EU Reset Stalls Over Budget Access
×