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UK inflation rose more than expected to a 15-month high of 3.5 per cent in April, prompting traders to scale back bets on additional rate cuts from the Bank of England.
Wednesday’s figure from the Office for National Statistics was both higher than the 3.3 per cent predicted by analysts polled by Reuters and March’s 2.6 per cent.
The rise was driven by higher energy costs after regulators raised the household price cap, as well as a jump in water bills, the ONS said. Higher airfares also contributed.
Services inflation, a key measure of underlying price pressures for rate-setters, climbed to 5.4 per cent in April, eclipsing the 4.8 per cent expected by analysts and March’s figure of 4.7 per cent.
Traders trimmed their bets back to fully pricing in just one quarter-point cut by this time next year, compared with two before the data, according to levels implied by swaps markets.
Following the release of the figures, the pound strengthened, up 0.5 per cent against the dollar at $1.344.
The BoE has vowed to persist with a “careful and gradual” approach to additional rate cuts after lowering borrowing costs four times since August.
But the Monetary Policy Committee was split over this month’s decision to cut rates by a quarter-point to their lowest level since 2023. On Tuesday, chief economist Huw Pill said he feared the BoE was reducing rates too rapidly and that the momentum behind falling inflation was “stuttering”.
Suren Thiru, economics director at accountants’ body the ICAEW, said last month’s increase “highlights the brutal hit to household and business finances from April’s multitude of eye-watering bill rises and tax hikes,” adding that an interest rate cut in June was unlikely.
Responding to April’s inflation figures, chancellor Rachel Reeves said she was “disappointed” and acknowledged that the “cost of living pressures are still weighing down on working people”.
She added: “We are a 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.”
Reeves’ increase in employer national insurance contributions was also expected to stoke price pressures.
Mel Stride, the shadow chancellor, hit back, saying that “families are paying the price for the Labour chancellor’s choices.”
The BoE expects inflation to reach 3.7 per cent later this year before falling back to its target of 2 per cent in 2027.
