UK inflation rose to 3.5% in April, according to official figures, up from 2.6% in March and higher than many economists had expected. This is the highest annual rate in more than a year and comes at a time when both households and businesses are facing a mix of rising costs.
The increase was largely driven by higher water, gas and electricity bills, many of which rose on 1 April. Water and sewerage prices alone increased by over 26%, the sharpest rise in nearly four decades. Airfare and holiday prices also jumped compared to last year, though that rise is expected to be temporary due to the timing of Easter.
For businesses, April also brought higher running costs, including the rise in the National Minimum Wage and an increase in employer National Insurance contributions, both of which are believed to have contributed to a rise in services inflation, which reached 5.4%.
Core inflation - which excludes volatile food and energy prices - also came in higher than expected, suggesting price pressures are more widespread than a few short-term changes.
The Bank of England’s inflation target remains at 2%, and before April’s figures, many were expecting two further interest rate cuts this year. However, some economists now believe only one may happen, with the Bank likely to take a more cautious approach.
In its last report, the Bank of England outlined its expectations that inflation would peak at 3.7% later this year before slowly easing. However, the Bank’s Chief Economist, Huw Pill, recently said that he feared the momentum behind falling inflation had started to stutter.
For now, many businesses will need to manage the impact of higher wage and operating costs alongside ongoing uncertainty over interest rates and consumer confidence.
For more info, see: https://www.bbc.co.uk/news/articles/cx2xx4n1xx0o