Inflation in the UK jumped more than expected last month to 3.5%, marking its highest level in over a year. The rise was largely fueled by significant increases in gas, electricity, water, and transport costs during what has been dubbed an “awful April.”
The Office for National Statistics reported that this sharp increase in the consumer prices index (CPI) follows a decline to 2.6% in March. The surge was driven by rising bills, including water and sewerage costs, which climbed 26.1%—the fastest increase since privatisation. Vehicle excise duty also saw a notable jump, adding further upward pressure on inflation.
Additional factors contributing to the rise include increases in employer national insurance contributions and the national minimum wage, which have pushed companies to raise prices beyond earlier forecasts. A spokesperson for the ONS explained that “gas and electricity bills rose compared with sharp falls at the same time last year due to changes to the Ofgem energy price cap.”
Monica George Michail, an economist at the National Institute of Economic and Social Research, commented: “Businesses are experiencing cost pressures amid the rise in national minimum/living wage, employer’s national insurance contributions, and regulated price increases. Some of these costs will be passed down to consumers through higher prices. We therefore anticipate just one further interest rate cut this year by the Bank of England.”
Business groups have expressed disappointment over the expected delay in interest rate cuts. The British Chambers of Commerce warned that rising costs and household bills have created “a perfect storm.” They added, “While April’s jump was expected, the scale, to 3.5%, is concerning. With the national insurance hike, minimum wage rise and global tariffs, our research shows 55% of businesses are expecting to put up prices in the coming months.”
Financial markets reacted by scaling back their expectations for interest rate hikes. The Bank of England’s monetary policy committee meetings in June and August are now unlikely to see rate reductions, with the next cut likely postponed to September, reducing rates from 4.25% to 4%.
Despite the rise, some factors moderated inflation, including falling oil prices that lowered petrol and diesel costs, as well as heavy discounts on children’s clothing and women’s footwear. Analysts at ING noted that a jump in services inflation from 4.7% to 5.4%—partly due to a rise in vehicle tax and the timing of Easter—played a significant role in pushing CPI above expectations. However, they expect this figure to fall back to around 4.5% this summer, supporting gradual Bank of England rate cuts through 2025 and into 2026.
At its last meeting on 8 May, the Bank of England cut interest rates by a quarter point to 4.25%, though the vote was split, with some members favoring no change or a larger cut.
