UK inflation jumps to 3.5% in April
British inflation unexpectedly surged in April, rising to 3.5% from 2.6% in March, according to figures released by the Office for National Statistics on May 21. This marks the highest inflation rate since January 2024 and the largest monthly increase since 2022, surpassing economists' expectations of 3.3% and the Bank of England's forecast of 3.4%. The rise in inflation is attributed to increased costs in energy, utilities, housing, and transportation.
Key contributors to the inflation spike include a 6.4% increase in the Ofgem energy price cap, which raised gas and electricity bills, and a 26.1% rise in water and sewerage charges. Additionally, council tax and housing-related costs have added pressure, while airfares jumped by 27.5% month-on-month, partly due to the Easter holiday timing. Wage increases, including a 6.7% rise in the national minimum wage and a £25 billion hike in employer national insurance contributions, have also driven services inflation to 5.7%, exceeding the Bank of England's expectations.
The unexpected inflation rise complicates monetary policy for the Bank of England, which recently lowered the base interest rate to 4.25%. Chief Economist Huw Pill has indicated a cautious approach to further rate cuts to avoid undermining inflation control efforts. The inflation spike exacerbates cost-of-living challenges for UK households, prompting Chancellor Rachel Reeves to commit to measures aimed at alleviating financial strain. Looking ahead, the Bank of England anticipates inflation will peak at 3.7% between July and September before gradually returning to its target of 2%. The latest data is likely to diminish expectations in financial markets for multiple interest rate cuts by the end of 2025.
