The United Kingdom’s annual inflation rate rose to 3.5% in April, according to data released Wednesday by the Office for National Statistics (ONS), exceeding analyst forecasts and halting a recent trend of cooling price growth.
Economists surveyed by Reuters had predicted a smaller rise to 3.3% in the twelve months to April. The unexpected uptick follows a gradual decline earlier this year, with inflation coming in at 2.8% in February and 2.6% in March.
Core inflation — which strips out the more volatile costs of energy, food, alcohol, and tobacco — also rose, hitting 3.8% in April, up from 3.4% the month before.
The ONS said the largest upward contributions to April’s inflation figure came from housing and household services, transport, and recreation and culture. These gains were partially offset by downward pressure from clothing and footwear prices.
Economists had anticipated some inflationary pressure this month, attributing the increase to factors such as the rise in the energy price cap — the maximum price suppliers can charge customers — as well as domestic business tax increases, the timing of Easter, and unseasonably warm weather.
Julien Lafargue, chief market strategist at Barclays Private Bank, said in comments shared Tuesday that the report is “relatively noisy” and comes at a time when the Bank of England is “eagerly trying to figure what to do next.” He added, “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 favorable economic conditions going forward.”
The inflation reading had immediate market implications, with the British pound rising roughly 0.4% against the U.S. dollar following the release.
Chancellor Rachel Reeves responded to the data on Wednesday, saying she was “disappointed” with the figures and acknowledged that “cost of living pressures are still weighing down on working people.”
Bank of England Outlook
The Bank of England had previously forecast a temporary increase in inflation to around 3.7% in the third quarter, citing expected rises in energy and regulated prices, including water bills. Despite this, the central bank moved ahead with a cut to its key interest rate, reducing it to 4.25% at its May meeting.
At the time, the monetary policy committee emphasized that further cuts would be “gradual and careful,” with the ultimate goal of reducing inflation to its 2% target. However, BOE officials also noted that external factors, such as potential U.S. trade tariffs, could shift the trajectory of future policy moves by dampening global demand and affecting UK growth.
Last week, the UK received a rare dose of positive economic news when preliminary GDP figures showed a 0.7% expansion in the first quarter. However, economists cautioned that the strength of the print likely reflected front-loaded economic activity ahead of April’s tax hikes and possible trade disruptions, and may not be sustainable in the months ahead.
