21 May 2025
If you are covering the latest UK inflation data, please see the following comment from Lindsay James, investment strategist at Quilter:
“Just as the government thought it could celebrate three trade deals in as many weeks, the economic reality has brought it back down to Earth with an even sharper increase in inflation than had been expected. At 3.5%, inflation is now at the highest level it has been for more than a year, largely driven by upward pressure from housing and household services, transport, and recreation and culture. April is a month when many businesses put through annual price increases, but this dataset also marks the first month of what could be a higher than hoped for inflationary period.
“Dubbed ‘Awful April’, last month marked the beginning of increased employer national insurance contributions and minimum wage increases, which are likely to have led to price rises. Water and energy bills also went up significantly in the month, with Ofgem increasing the energy price cap by 6.4%, while water saw even sharper rises, with the average annual bill increasing by a staggering 26%. Throw in the increases in council tax bills and other utilities such as phone and internet contracts and you have all the ingredients for a spike in inflation. Furthermore, there are signs that consumer demand is generally holding up better than expected, and as a result companies may feel confident enough to pass through ongoing price pressures to their customers.
“There are also now vocal concerns coming from the Bank of England that interest rate cuts have come too soon and that inflationary pressures need to be combatted. Chief economist Huw Pill sounded the warning earlier this week and today’s worse than expected inflation rate likely means further holds are imminent, especially given the strong economic growth seen in the first quarter.
“Things on the global picture are equally looking less beneficial for inflation. President Trump has watered down his tariffs, with further ‘trade deals’ for the US to be announced. Tariffs were expected to be disinflationary for the UK as global demand was expected to reduce and low-cost Chinese imports were expected to find their way to Europe and the UK in greater quantities. We may be out of the ‘higher for longer’ phase for interest rates, but today’s figures and recent news indicates that we cannot expect rates to fall as quickly as markets would like.”
