The UK’s annual inflation rate rose to 3.5% in April, coming in above economists’ expectations and halting a recent trend of declining price growth, according to figures released Wednesday by the Office for National Statistics.
Analysts polled by Reuters had forecast a rise of 3.3% in the consumer price index (CPI).
The latest reading compares with 2.8% in February and 2.6% in March, which had supported expectations for a continued easing in inflationary pressures.
Core inflation — which strips out volatile components such as energy, food, alcohol, and tobacco — also moved higher, reaching 3.8% year-on-year in April, up from 3.4% in March.
What drove the increase in UK inflation
The ONS said the largest upward contributions to the monthly change in inflation came from housing and household services, transport, and recreation and culture.
In contrast, clothing and footwear made a notable downward contribution, partly offsetting overall price growth.
Economists attributed the rise in headline inflation to several factors, including a higher energy price cap, tax changes for domestic businesses introduced in April, seasonal adjustments tied to the Easter holidays, and unseasonably warm weather.
The sharp increases aligned with the implementation of a £26 billion ($34.8 billion) hike in employer payroll taxes and a nearly 7% rise in the minimum wage, both unveiled in the October budget.
Surveys indicated that a significant share of firms intended to pass on the added costs to consumers through price increases in an effort to safeguard their profit margins.
BOE may remain cautious
The Bank of England had already signaled that it expected a temporary pickup in inflation to around 3.7% in the third quarter, reflecting energy price pressures and increases in regulated prices such as water bills.
Despite that forecast, the central bank proceeded with a rate cut earlier this month, lowering its benchmark interest rate to 4.25%.
Officials at the BOE noted that any further easing in monetary policy would be “gradual and careful,” as the bank continues to aim for its 2% inflation target.
That path could be complicated by global developments, including the impact of U.S. trade tariffs on international demand and domestic growth.
Markets react to hotter print
Sterling strengthened following the release of the inflation data.
The British pound rose by about 0.4% immediately after the numbers were published and was up 0.5% against the US dollar, trading at approximately $1.346.
The inflation uptick comes just days after official data showed that the UK economy grew by 0.7% in the first quarter — a stronger-than-expected figure.
However, economists cautioned that the performance may not be sustained in the second quarter, as the earlier growth was likely driven by front-loaded activity ahead of tax changes and trade uncertainties.
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