Inflation across the United Kingdom is set to spike sharply this month, with official figures due in the coming week expected to reveal the steepest monthly rise in over 18 months. Households are bracing for the impact as a fresh wave of cost increases—ranging from energy and water bills to payroll taxes—filters through the economy.
City economists anticipate that the Office for National Statistics (ONS) will report an increase in the consumer prices index (CPI) to 3.6% in April, up markedly from 2.6% in March. If realised, this would mark the most significant month-on-month rise since October 2022, reversing much of the progress made in the fight against inflation over the past year.
The uptick is being driven largely by a raft of price increases introduced at the start of the new financial year. These include regulated rises in household energy and water costs, increases in minimum wage levels, and higher employer payroll taxes—all of which took effect in early April.
Ofgem, the energy regulator, raised the price cap on household gas and electricity bills by 6.4%, setting it at £1,849 per year for a typical dual-fuel household. Meanwhile, average annual water bills climbed 26%—an increase of £123—bringing the total annual water bill to roughly £603. These price shifts alone are expected to make a substantial contribution to headline inflation.
Sanjay Raja, Chief UK Economist at Deutsche Bank, expects inflation to hit 3.4%, noting “historically large increases” in regulated bills. He also highlighted April’s adjustments to council tax, vehicle excise duty and air passenger duty as further inflationary pressures, compounded by an unusually late Easter which may have affected the timing of certain spending decisions.
Asset manager Investec projects a slightly lower figure of 3.3%, arguing that the rise “will not come as a surprise to the Bank of England.” The spike comes amid mixed signals in the broader economy; while global energy prices have continued to cool and sterling has strengthened against the US dollar—making imported goods cheaper—domestic cost pressures have intensified.
In particular, fiscal changes introduced by Chancellor Rachel Reeves in the October 2024 budget are now starting to bite. From 6 April, businesses have faced a £25bn increase in national insurance contributions for employers, coinciding with a 6.7% hike in the National Living Wage. These changes are placing pressure on sectors such as hospitality, retail, and leisure—many of which rely heavily on low-paid and part-time workers—to pass rising costs onto customers.
Analysts at Pantheon Macroeconomics have warned that these input cost increases may give firms “the perfect excuse to jack up prices,” especially in service-related industries. Raja also noted that the impact would likely be felt in cultural services, including concert tickets and gallery admissions. Indeed, the Bank of England previously estimated that the NIC changes alone would add approximately 0.2 percentage points to inflation.
Despite these challenges, inflation is projected to settle at around 3% for the remainder of 2025. Financial markets continue to expect the Bank of England to implement two more quarter-point cuts to its base rate—currently standing at 4.25% following reductions in February and May. This would bring borrowing costs further down from their peak of 5.25% last year.
However, the medium-term outlook remains uncertain as policymakers contend with both domestic and international pressures. Domestically, the impact of fiscal changes—such as tax revisions and regulatory adjustments—must be monitored for their effect on household consumption and business investment. On the global front, trade tensions and tariff uncertainties, particularly surrounding potential policy shifts by former US President Donald Trump, continue to pose risks to price stability.
Economists and central bank officials will be watching next week’s inflation print closely, with Monetary Policy Committee (MPC) members expected to comment on how persistent these pressures are likely to be. As the UK economy continues its delicate balancing act between growth and inflation control, the figures will provide an important barometer for the Bank of England’s next policy steps.
For more information on the April inflation surge, see the full report from Business Matters Magazine.
