UK inflation rate surges to 15-month high amid April price shock

[LONDON] UK inflation jumped more than forecast to its highest rate in more than a year as households were hit by a raft of price increases during what has been dubbed “awful April” in the British media.

Increases to energy, water and other administered prices pushed inflation to 3.5 per cent from 2.6 per cent, the Office for National Statistics said on Wednesday (May 21). It was above the 3.4 per cent forecast by the Bank of England and the 3.3 per cent economists expected.

Services inflation, watched closely by the BOE for signs of underlying price pressures, accelerated to 5.4 per cent from 4.7 per cent. The central bank had expected a rate of 5 per cent.

The figures largely reflect a 6.4 per cent increase in the energy cap – the maximum suppliers are allowed to raise prices for gas and electricity. Consumers also faced higher water bills, train fares and local authority taxes as a wide range of basic costs went up.

The sharp increases coincided with the introduction of a £26 billion (S$45.1 billion) boost to the payroll taxes paid by employers and a near 7 per cent rise in the minimum wage, both announced in the October budget. Surveys suggested that a high proportion of firms were planning to raise prices in a bid to protect their margins.

It leaves inflation well above the 2 per cent target, with the BOE expecting the rate to accelerate further to a peak of 3.7 per cent in September. That’s a fresh blow for Prime Minister Keir Starmer, as households face a renewed cost-of-living squeeze at a time when Donald Trump’s tariffs are weighing on the economic outlook.

The pickup is expected to prove temporary, and the BOE is not anticipating second-round effects where workers and firms respond by raising pay demands and prices. However, with wage growth still stubbornly high, policymakers continue to favour a gradual approach to cutting interest rates. BLOOMBERG