Inflation in the UK will rise sharply in April after household bills surge
Inflation is expected to accelerate sharply this month, with next week expected to show monthly rises since October 2022 as households absorb a fresh wave of bills.
City analysts predict that the Office of Statistics (ONS) will report inflation climbing to 3.6% in April, up from 2.6% in March, the biggest monthly growth in more than two years.
The surge was driven by widespread increase in energy and water fees, rising wage costs for employers, higher minimum wages, and other administrative expenses raised at the start of the new fiscal year.
In April, Ofgem raised the energy price cap by 6.4 per cent to £1,849, while annual household water fees rose by an average of 26 per cent (£123) to £603, both of which are major contributors to expected inflation rises.
Sanjay Raja, the UK chief economist at Deutsche Bank, predicts inflation to reach 3.4%, citing “a significant increase in energy and water charges throughout history” and additional inflationary pressures from changes to council taxes, vehicle excise taxes and air passenger taxes.
“There will be an increase in the links to the index and the administrative bill,” Raja said. “It will also increase the price momentum later than usual Easter.”
Asset manager Investec is expected to have 3.3% read, noting that the rise “will not be surprised by the Bank of England.” Economists expect several members of the Monetary Policy Committee (MPC) to comment on the data next week.
Domestic pressure is intensifying despite global energy prices falling and the pound strengthens the dollar against the dollar (reduces import costs).
Since April 6, corporate employer NPC donations face £25 billion growth, with a minimum wage increase of 6.7 per cent, both policies proposed by Rachel Reeves in his budget last October.
These growth is expected to hit areas such as retail, leisure and hospitality, which employ large numbers of low-paying and part-time workers.
Analysts at Pantheon Macroeconomics agree with these concerns: “The payroll tax rate hike and the increase in minimum wage in early April are likely the perfect excuse for a range of companies to raise prices.”
Raja also suggested that price increases could be filtered into cultural services, including admissions to concerts and galleries, noting that the Bank of England had previously estimated that the NIC changes would increase inflation by 0.2 percentage points.
Despite the recent surge, inflation is expected to hover about 3% for the rest of 2025. Investors still expect the Bank of England to lower interest rates by two more quarters before the end of the year after the February and May cuts, which will lower the base rate to 4.25%, the lowest in two years.
Although short-term pressure remains, the overall inflation trajectory is expected to stabilize. But policymakers will need to weigh the impact of domestic fiscal changes and global trade tensions, including tariff uncertainty following President Trump’s policies – driving the path to sustainable growth and price stability.
