London: Inflation in the United Kingdom rose sharply in April, exceeding expectations and reducing the likelihood of a near-term interest rate cut by the Bank of England (BoE). The annual consumer price inflation rate reached 3.5%, up from 2.6% in March—marking the largest month-on-month increase since 2022, when inflation was surging above 10%.
One of the main drivers behind the spike was a steep rise in airfares, attributed to the Easter holiday period falling in April this year. The Office for National Statistics (ONS) reported that air travel costs jumped by 27.5% from March—making it the second-largest increase for April on record.
A Reuters poll of economists had forecast April inflation at 3.3%, while the BoE’s own projections pointed to a 3.4% rise. The actual figure surpassed both, leaving Britain with the second-highest inflation rate among major Western European economies, trailing only the Netherlands.
The unexpected rise in inflation has stirred concerns over the trajectory of the UK economy. Although economic growth remained strong in early 2025, the pace is expected to decelerate in the coming months.
Chancellor of the Exchequer Rachel Reeves expressed concern over the data. “We are a long way from the double-digit inflation we saw under the previous administration, but I’m determined that we go further and faster to put more money in people’s pockets,” she said.
In the immediate aftermath of the data release, the British pound initially strengthened against the US dollar before retreating, while UK government bonds (gilts) underperformed relative to their global counterparts.
Investor expectations for a rate cut in August dropped significantly—from 60% before the report to just 40% afterward. Futures pricing now indicates approximately 37 basis points of cumulative cuts by year-end, showing little change despite the new inflation data.
JP Morgan economist Allan Monks noted that the figures would likely reinforce the central bank’s caution. “The surprise will reinforce the BoE’s hawkish bias,” Monks said. “The door to a June cut appears shut and the likelihood of an August cut (still our base case) has shifted lower.”
Services Inflation Surges
Services inflation, a key measure of domestic price pressures, surged to 5.4% in April—well above the BoE’s 5.0% forecast and surpassing the top range of economist predictions at 4.8%. On a monthly basis, services prices climbed by 2.2%, the steepest increase since 1991.
Although the ONS attributed much of the jump to holiday-related travel, analysts from Pantheon Macroeconomics argued that not all of the inflation could be explained by higher airfares. They cautioned that their earlier forecast for two more BoE rate cuts this year may no longer hold.
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Adding to the inflationary burden were higher costs for gas, electricity, and water, alongside increased employer taxes—factors that led British media to dub April “Awful April”. The BoE now expects inflation to rise to 3.7% by September.
Some BoE officials are questioning the assumption that recent price hikes will not trigger long-term changes in consumer and business pricing behavior. BoE Chief Economist Huw Pill recently stated that rate cuts may have come too quickly, considering continued wage-driven inflation pressures. He described his vote to maintain rates in May as “a skip” rather than “a halt”.
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Meanwhile, a fresh employer survey published Wednesday indicated that pay increases are beginning to moderate, potentially reducing future inflation risks.
At its May 8 meeting, the BoE trimmed interest rates by 25 basis points to 4.25% in a split decision. Two members of the Monetary Policy Committee advocated for a deeper cut, while two—including Pill—voted to hold rates steady.
