Food has also become more expensive, with prices up by 3.4% year on year in April, up from 3% in March. The UK statistics office said the upward effects came from meat, mineral water, bread and cereals, and sugar and jam. The downward effects came from vegetables, and from milk, cheese and eggs. Meanwhile, clothes prices fell by 0.4% in the 12 months to April, compared with a rise of 1.1% in March. This was mainly because of lower prices for women’s clothes and shoes and garments for infants, as many more items were on sale than usual. The statistics office said it is possible that the larger proportion of items on sale was a consequence of index day coinciding with the Easter holidays in April this year, while occurring after the Easter holidays last year. Luke Bartholomew, deputy chief conomist at the fund manager Aberdeen, echoed those comments, saying: Inflation was always going to jump higher today given movements in energy and other administered prices, but the reported increase is bigger than expected. In particular, services inflation looks especially strong, which may suggest the various cost shocks such as the increases in national insurance and the living wage are hitting firms and starting to be passed on into final Prices. Certainly, this will reinforce the concerns voiced by Bank of England chief economist Huw Pill that underlying inflation pressures are sticky and so there is less room for the Bank to cut rates. Nonetheless, we think a quarterly profile of rate cuts remains appropriate, but the chance of the easing cycle speeding up any time soon has fallen. The “Awful April” inflation surge has cast doubt on an interest rate cut in the summer, according to Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales. This inflation surge highlights the brutal hit to household and business finances from April’s multitude of eyewatering bill rises and tax hikes, with higher energy costs in particular driving an uncomfortably large increase in the headline rate. Rising services and core inflation suggest that the double blow for businesses from the rising National Insurance and National Living Wage has further fuelled underlying price pressures, more than offsetting the downward squeeze from a wilting labour market. While the aftershocks from ‘awful April’ should keep inflation above 3% for a while, it could start drifting downwards as lower energy bills kick in, assisted by July’s expected fall in Ofgem’s energy price cap. These figures probably rule out a June rate cut and while policymakers should view April’s spike as a temporary blip, the size of the increase means an August policy loosening is far from a done deal. Markets see the probability of a rate cut in June at just 6% and a cut is not fully priced in for the August meeting either. Traders are still expecting interest rates to fall to 4% by September, from 4.25% at the moment. The chancellor of the exchequer, Rachel Reeves, said: I am disappointed with these figures because I know cost of living pressures are still weighing down on working people. We are long way from the double digit inflation we saw under the previous administration, but I’m determined that we go further and faster to put more money in people’s pockets. That’s why we have increased the minimum wage for millions of working people, frozen fuel duty to protect commuters and struck three trade deals in the past two weeks that will go towards cutting bills. Here’s our full story on inflation: Inflation jumped in April by more than expected to 3.5% after dramatic increases in water bills, energy costs and council tax, according to official figures. A rise in employer national insurance contributions and a boost to the national minimum wage also put pressure on companies to raise prices last month by more than City analysts had forecast. Calls for deeper interest rate cuts are likely to be rebuffed by the Bank of England after the growth in prices proved to be stronger than financial markets expected. Officials at the Bank cut interest rates by a quarter point to 4.25% at their last meeting on 8 May but the vote by the nine-member monetary policy committee was split three ways, with two members voting to keep rates on hold while another two supported a half-point reduction. Transport costs rose by 3.3% year on year in April, up from 1.2% in March, following a rise in vehicle excise duty – it now applies to old and new electric cars plus some of the rates paid by new petrol and diesel cars doubled. Airfares rose by 27.5% on the month, up from 6.5% a year ago. This is the second-highest monthly rise for an April since records began. Flights departing in the Easter holidays tend to be more expensive. Index day occurred during the Easter holidays this year, which made every flight more expensive, while last year, index day occurred after the Easter holidays. There was a downward effect from motor fuels, which fell by 9.3% year on year in April, compared with a 5.3% annual drop in March. The average price of petrol fell by 3.0 pence per litre between March and April to 134.5 pence per litre, down from 148.1p in April. Diesel prices fell by 3.1p per litre to 141.7p, down from 157.1p a year earlier. UK inflation jumped back above 3% in April, pushed up by higher energy and transport costs. The consumer prices index increased by 3.5% in the 12 months to April, up from 2.6% in March, according to the Office for National Statistics. That’s towards the top end of economists’ forecasts. The ONS pointed to higher prices for housing and household services, transport, and recreation and culture, while the biggest downward contribution came from clothing and footwear. The main culprit was rising energy prices. The regulator Ofgem estimated that for an average household paying by direct debit for dual fuel, the increases equate to £1,849, a rise of £111 over the course of a year. Prices of electricity, gas and other fuels rose by 6.7% in the year to April. Gas prices rose by 7.5% on the month, compared with a fall of 15.8% a year ago. Electricity prices rose by 2.9%, compared with a fall of 10.2% a year ago. Prices of water and sewerage rose by 26.1% last month, against a rise of 8.1% a year ago. This is the largest rise since at least February 1988. The US dollar has fallen, extending a two-day slide against other major currencies, as Donald Trump pressured Republicans to back his sweeping tax bill. The US president visited the Capitol to persuade lawmakers to support what is known as the One Big Beautiful Bill Act. Traders are also cautious ahead of the Group of Seven finance minister talks in Canada, where US officials could angle for a weaker dollar. The greenback is down by 0.5% against a basket of major peers. Goldman Sachs economist James Moberly is predicting a rise in UK headline inflation to 3.5%. He explained: We expect services inflation to rise to 5.1% (from 4.7% in March), with the increase driven by firms passing through additional costs from the hike in employer national insurance contributions (NICs), a significant Easter effect on airfares, and larger price resets for sewerage bills, vehicle excise duty, and some telecoms services. Our forecast is 10bp above the Bank of England’s projection. A significant increase in water prices is likely to raise core goods inflation to 1.53% (from 1.11% in March). This implies that core inflation will rise to 3.79% (from 3.38% in March), broadly in line with the level implied by the BoE’s forecasts. We also see strength in non-core components; food retailers are particularly exposed to the impact of the employer NICs change, while energy inflation is set to rise given a 6.4% increase in the Ofgem price cap and strong base effects. What does this mean for interest rates? Moberly said: A firm services and headline CPI print would further raise the likelihood that the monetary policy committee pauses in June. But with the increase in inflation largely driven by temporary factors, a stronger print would not necessarily be an indication of greater services pressures ahead; in fact, we see services inflation falling back below the BoE’s projections later in the year. Given the restrictive policy stance, notable labour market loosening, a likely deceleration in pay growth, and a softer near-term demand outlook, we therefore continue to expect the Bank to accelerate the pace of cuts in the second half. Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy. Inflation in the UK is expected to have risen back above 3% last month, reflecting higher household bills. The consumer prices index is forecast to have risen by 3.3% in the 12 months to April, up from 2.6% in March, according to economists polled by Reuters. The figures from the Office for National Statistics are due at 7am BST. There is an unusually wide range of forecasts, from 2.7% to 3.6%. The core rate of inflation, which strips out volatile energy and food costs, is predicted to have risen to 3.6% from 3.4%. Many household bills go up in April every year, from council tax to energy and water, but this year the picture is complicated by the impact of higher national insurance contributions for employers, and by the late timing of Easter. This year, people talked about “Awful April”. Julien Lafargue, chief market strategist at Barclays Private Bank, said: April is likely to show UK headline inflation jump back up above 3%. This is driven by a number of one-off adjustments including the new National Insurance contributions and the increased National Living Wage. There is also the impact of Easter, which fell squarely in April in 2025 but was in March in 2024, as well as the lovely weather that the UK has experienced in recent weeks. All this will make for a relatively noisy report at a time when the Bank of England is eagerly trying to figure what to do next. However, beyond the short-term distortions, we believe the overall direction of travel for UK inflation is lower. This should provide the central bank with room to consider at least a couple more interest rate cuts this year, supporting favourable economic conditions going forward. As Rachel Reeves travels to Banff in Canada for a two-day summit of the G7 finance ministers and central bank governors, she said: This government is laser-focused on delivering for the British people. That’s why in the past two weeks we have struck three major deals with the US, EU and India that will kickstart economic growth and put more money in people’s pockets as part of our plan for change. The world is changing, but we have shown in recent weeks that Britain is a strong economy that can navigate that change and we are once again a nation that is open for business. The UK government has been boosted by three trade deals struck within the last fortnight – with the US, the European Union and India. The chancellor is expected to meet with the US treasury secretary, Scott Bessent, for the first time since the US-UK trade deal (which, unlike the free trade agreement with India, is not a full trade deal). The UK treasury said it paves the way for further negotiations on tariffs to secure benefits across our economy – such as a future technology partnership between the two countries. Reeves is also due to meet Canada’s finance minister, François-Philippe Champagne, for the first time since the Canadian election, with the chancellor welcoming Canada’s leadership during its G7 presidency in areas like tackling financial crime and supporting the strong ties between the UK and Canada on trade and economic security. The Agenda 7am BST: UK inflation for April G7 two-day meeting of finance ministers and central bank governors in Canada
Author: Julia Kollewe