Britain suffered a bigger-than-expected inflation surge in April, including in areas watched closely by the Bank of England which investors now believe will have to slow its already gradual pace of interest rate cuts.
Inflation leapt to 3.5 percent in April from 2.6 percent in March, the Office for National Statistics said, the highest reading since January 2024 and the largest increase between two months since 2022 when inflation was rocketing above 10 percent.
A jump in air fares over the Easter holiday was a driver of the sharp climb.
A Reuters poll of economists had pointed to a reading of 3.3 percent in consumer price inflation in April. The Bank of England earlier this month projected inflation of 3.4 percent.
The data will add to unease over the outlook for Britain’s economy which grew strongly in early 2025 but is likely to slow in the second half of the year.
Finance minister Rachel Reeves said she was “disappointed” by the inflation figures which further reduced the chance of an interest rate cut in the coming months in the eyes of investors.
“We are 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,” Reeves said.
Sterling rose against the US dollar after the figures were published and was up by almost a third of a cent at 0640 GMT.
The chance of a rate cut in August was cut to 40 percent by investors, down from 60 percent before the inflation data.
“This data should call into question whether there is a cut … in August,” Patrick O’Donnell, senior investment strategist at Omnis Investments, said.
Interest rate futures pricing suggested investors saw about 35 basis points of BoE rate cuts by the end of 2025, little changed from Tuesday.
Services price inflation – a key metric of domestic inflation pressure – leapt to 5.4 percent in annual terms in April, above all forecasts in the Reuters poll for an increase to 4.8 percent. It was far above the BoE’s prediction of a reading of 5.0 percent for April.
