UK Inflation rises to 3.5% in April, surpassing forecasts

The latest Consumer Prices Index (CPI) figures released this morning, 21st May, by the Office for National Statistics (ONS) show UK inflation rose to 3.5% in April – its highest level since February 2024.

While a poll of City economists had forecast a rise to 3.3%, and analysts at the Bank of England expected 3.4%, the actual increase – up 0.9 percentage points from March – took many by surprise.

This jump in inflation reflects a combination of rising employer National Insurance contributions and increases in the national minimum wage, which have largely been passed on to consumers and took effect from the start of April. Households also faced higher utility bills, council tax, and grocery costs. Water and sewerage charges rose 26.1% – the steepest rise since privatisation – while vehicle excise duty also saw a sharp increase. These pressures collectively pushed the CPI to its highest level in over a year.

Retail Sector Reaction

Kris Hamer, Director of Insight at the British Retail Consortium, responded:

“Rising inflation was inevitable following the wave of additional costs hitting employers, especially retailers who employ over 3 million people nationwide. For months, retailers have warned that cost pressures would result in higher prices.

“The government must act now to reduce business costs and regulatory burdens. It’s crucial that the Employment Rights Bill targets exploitative employers without adding further strain to responsible businesses, or we risk reversing progress on retail employment.”

Market Impact

In response to the inflation data, financial markets adjusted expectations for interest rate cuts. A previously expected rate reduction from 4.25% to 4% is now anticipated around September, contingent on inflation trends through the summer.

Business Outlook

Stuart Morrison, Research Manager at the British Chambers of Commerce, warned:

“Businesses are facing a perfect storm of cost pressures, compounded by rising household bills. While a rise in April’s inflation was expected, the scale – reaching 3.5% – is concerning.

“With the increase in National Insurance, minimum wage, and international tariffs, our research shows 55% of businesses are planning to raise prices in the near future.”

On a more optimistic note, Morrison added:

“The UK-EU reset deal announced Monday, along with recent trade developments with the US and India, offers hope for growth. However, with inflationary pressures mounting, the Government must intensify its support for businesses rather than ease off.”