Price rises have accelerated to 3.5% according to the Office for National Statistics (ONS) Consumer Price Index (CPI) measure of inflation for April 2025, released on 21 May 2025.This means that, year-on-year, the cost of a range of goods and services is now 3.5% higher than the same period 12 months ago. It is a 0.9% jump from March 2025’s figures, which showed 2.5% CPI inflation.
Inflation is now at its highest level since March 2024.
The increase is higher than anticipated from the Bank of England and casts some doubt on the pace of interest rate cuts its Monetary Policy Committee (MPC) is likely to make this year.
The Bank of England’s own chief economist, Huw Pill, who is a member of the MPC has warned the pace of cuts is likely to be too quick. The latest inflation figures appear to corroborate his view.
Why has inflation increased?
The main issues stem from annual bill increases that took effect in April, such as council tax hikes and other areas, including rises in the Ofgem energy price cap.
But so-called ‘core inflation’ – which strips out more volatile prices such as food, energy, alcohol and tobacco – also showed a strong increase to 3.8%, up from 3.4%. Similarly, services inflation rose from 5.4% to 5.8%.
The figures underscore the difficult position of the Bank of England, which is looking to balance higher price rises against lacklustre economic growth in the UK economy.
Investors are now ‘pricing in’ just 0.35% more bank rate cuts in 2025 – far short of earlier predictions which saw the rate falling to 3.5% (it is currently 4.25%). This could lead to changes in pricing for certain financial products, such as mortgage providers pulling back on cutting their offered rates.
Inflation persisting higher than expected could also hamper the Bank’s efforts to support economic growth, as its mandate to manage price rises takes precedence.
What does this mean for your finances?
The Bank of England is adamant that the current bout of rising inflation is down to one-off pressures that won’t persist over the rest of the year, particularly because major input prices such as energy costsand oil are falling, which should ease pressure in time.
It is impossible to accurately predict how the Bank of England will shift its approach now, but what is clear is major finance providers are slashing rates. This is good for mortgage holders looking to find a cheaper deal, but bad news for savers.
Savings are now in danger of languishing on rates that don’t stay ahead of inflation. This means looking at alternatives such as investing is more pressing than ever to ensure portfolios are given the best opportunity for long-term growth.
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