The United Kingdom’s inflation rate rose more sharply than expected in April, presenting a challenge for both the Labour government and the Bank of England’s monetary policy stance.
According to the Office for National Statistics (ONS), the consumer price index (CPI) increased to 3.5%, up from 2.6% in March, marking the highest level since January 2024. The broader CPIH measure, which includes housing costs, climbed even further to 4.1%.
The increase—dubbed an “Awful April” by some commentators—was largely driven by regulated price hikes in energy, water, council tax, and rail fares. A notable factor was the 6.4% rise in the Ofgem-regulated energy price cap, closely linked to global wholesale energy prices. However, some domestic pricing decisions also contributed, including a 26.1% monthly surge in water and sewerage bills—the highest since records began in 1988.
The unexpected spike in inflation has cast doubt on the Bank of England’s forecast that inflation would peak temporarily at 3.7% later in the year before steadily returning toward its 2% target. Inflation has remained above that target for four years.
Core inflation, which strips out volatile components such as energy and food, also rose—to 3.8% from 3.4%—highlighting continued underlying price pressures. Services inflation, closely watched by policymakers, rose to 5.4% in April from 4.7% the previous month, driven by higher wages and increased business operating costs.
April’s data arrives as the Labour government faces pressure over the rising cost of living. While some of the inflationary forces are global in nature, critics have pointed to government decisions that allowed sharper domestic price rises, particularly in utilities, aimed at addressing long-term environmental and infrastructure challenges.
Chancellor Rachel Reeves expressed disappointment with the figures, acknowledging the burden on working families and reiterating the government’s commitment to easing cost-of-living pressures.
The data also complicates the outlook for interest rates. Earlier this month, the Bank of England lowered its key interest rate to 4.25%, a move that split its Monetary Policy Committee. Chief Economist Huw Pill, who voted to hold rates, warned that disinflation may be “stuttering” and that the pace of cuts may be too rapid given the persistent price pressures.
Market reactions were swift. Yields on two-year government bonds rose to a seven-week high, and the pound gained against the dollar, as traders adjusted their expectations for further interest rate cuts. Money markets now price in only one more cut this year, with a 50% chance of a reduction in August—down from 60% before the inflation data was released.
Despite the setback, some economists maintain that the long-term direction for inflation remains downward. Factors such as easing global energy prices and fading effects of recent tax increases could help bring inflation closer to the target over time. However, the current spike serves as a reminder that inflationary risks remain present and may require a more cautious policy response.
With input from CNBC, Bloomberg, Politico, and the Wall Street Journal.
