A customer viewed items on a shelf in a supermarket in London, UK on January 15, 2025.
Dan Kitwood | Getty Images News | Getty Images
The UK’s annual inflation rate reached 3.5% in April, surpassing analysts’ expectations, according to data released by the Office for National Statistics (ONS) on Wednesday.
Reuters predicts that the consumer price index will reach 3.3% in the twelve months to April.
The latest data release is linked to the recent cooling inflation trend, with prices falling to 2.8% in February and prices up 2.6% in March.
Core inflation rates did not include more volatile energy, food, alcohol and tobacco prices, which grew 3.8% in the year through April, up from 3.4% in the twelve months to March.
The biggest upward contribution of monthly changes in inflation comes from housing and family services, transportation, entertainment and culture. On the other end, the largest (partially offset) contribution is made from clothing and footwear, ONS said in a press release.
The data highlights the increasing pressure on UK households as prices for electricity, gas and other fuels rose 6.7% in the year to April. ONS says that at least February 1988, the price of water and sewers has risen by 26.1% for the month to April.
British Prime Minister Rachel Reeves said on Wednesday that she was “disappointed” by the latest data and that “the pressure of life is still stressing workers”.
Economists expect an increase, mainly due to the rise in energy price caps – the highest price that energy suppliers can charge customers – as well as some one-time adjustments, including the family business tax introduced in April, the Easter holiday and the good weather recently.
Still, the data will disappoint the Labor government, which aims to reduce the pressure on British consumers. It will also be food for thinking for Bank of England policymakers, whose key interest rate lowered its key interest rate to 4.25% at its last meeting in early May.
Broker Wealth Club investment manager Nicholas Hyett said Wednesday that the latest inflation data could “cause some odor.”
“The two members of the MPC (Monetary Policy Committee) want to keep interest rates unchanged and are likely to be proven by the number of people today. Since the impact of this domestically generated inflation measure on banks should be more likely to affect the core inflation rate,” he said.
Bank of England expects
BOE sends a wide range of signals It expects inflation to temporarily increase to 3.7% in the third quarter, partly due to rising energy prices and certain regulated prices (such as water fees).
The forecast rise in inflation is not enough to prevent shipowners from reducing their key interest rates amid the ongoing uncertainty of economic growth and trade tariffs. Still, BOE should be aware of inflationary pressures, insisting at the time that any further reduction in interest rate reductions would be “gradual and cautious” as it hopes to reduce inflation to its target 2%.
It said the rate of slowing down could change if U.S. trade tariffs weaken global demand and hit UK growth beyond expectations.
There was little good news in terms of growth last week, with preliminary quarterly gross domestic product (GDP) data showing that UK economic output grew by 0.7% in the first quarter.
The impressive data is unlikely to be replicated in the second quarter, economists say, noting that the bumper’s first-quarter prints are largely the result of early proposed activities and the increase in domestic corporate tax revenue in April.
Julien Lafargue, chief market strategist at Barclays Private Bank, said in an emailed comment Tuesday that the latest inflation data “will be a relatively noisy report as the Bank of England is eager to figure out what to do next.”
He added: “However, besides the short-term distortion, we believe that the overall travel direction of inflation in the UK is lower. This should provide room for central banks to consider at least a few additional cuts this year to support a favorable economic situation.”