Last month, inflation in the U.K. rose to 3.5%. That’s the first time it’s reached that high since January of 2022. This surprise spike renewed fears over the UK’s long-running cost of living crisis. At the same time, millions of low-income families are already getting pinched as costs increase in critical sectors such as energy, water, and transportation.
While overall inflation increased, the effect was not as damaging due to a decrease in the price of oil. This drop in demand impacted the prices for petrol and diesel. This is because aggressive discounting in the retail space was a critical factor to keep clothing prices from skyrocketing. This was the case particularly for children’s apparel and women’s shoes. Regardless, sticker shock in several other areas of the economy has inflated the inflation numbers.
The Consumer Price Index (CPI) skyrocketed. This spike was primarily driven by an incredible 26.1% hike in water and sewerage bills, the largest increase since the privatization of the sector began. The cost of vehicle excise duty went up by much sharper margins as well, further heaping the financial burdens felt by consumers.
According to a recent City poll of City economists, inflation was expected to jump by 3.3% in April. The Bank of England was forecasting an even faster increase of 3.4%. The reality of the increase to 3.5% is starting to set in and is alarming both policymakers and economists.
The only problem, as Rachel Reeves, Shadow Chancellor of the Exchequer immediately noted, is that she can’t say she’s surprised by new inflation figures.
“I know cost of living pressures are still weighing down on working people.” – Rachel Reeves
Reeves focused on the idea of taking a more preventative approach to save families from costly burdens. Mel Stride, a conservative government minister, was among those to voice these concerns. He called the inflation jump “deeply concerning,” especially for families already struggling with escalating expenses.
The British Chambers of Commerce has also joined the debate. Additionally, they announced that 55% of small businesses plan to increase their own prices in the next three months. The expected fare hikes are fueled by a barrage of cost pressures. These exceed nationally mandated increases for the national minimum/living wage, employer’s national insurance contributions and regulated price increases.
“Businesses are experiencing cost pressures amidst the rise in national minimum/living wage, employer’s national insurance contributions, and regulated price increases. Some of these costs will be passed down to consumers through higher prices,” – Monica George Michail
Analysts at ING are, as a result, cautiously optimistic about where the trend is headed. They’re forecasting inflation to fall from April’s 5.4% closer to a 4.5% in the summer months. Their thinking is that this development will prevent it from straying from its deflationary course. Consequently, the markets have priced in several future quarterly interest rate cuts later this year and extending into 2026.
Despite this potential easing, the current inflation figures have led many to label April as “awful April,” highlighting the struggles many households face amid rising expenses. Industry advocates argue that inflation is largely driven by increasing prices for key services. This reflects the cost of utilities, like gas, electric, water, and public transportation.
With families preparing for even more cost increases along with prolonged and persistent economic anxiety, times are still very much churning waters of chaos and uncertainty. The Bank of England is right to keep a watchful eye on these trends. It must make its monetary policy decisions with a full understanding of the collateral damage from inflationary pressures.