Rising energy and water bills have pushed inflation in the UK to its highest rate since the G7, with economists warning of a squeeze on businesses and households. The Consumer Price Index (CPI) rose to 3.5% in April, beating forecasts and concerns at the Bank of England.
Energy costs were the main driver of the increase, rising by 6.4% due to the Ofgem consumer price cap. However, water and sewerage bills saw a significant jump, with prices increasing by 26.1%, the largest annual rise since February 1988. This has had a knock-on effect on inflation, which has been close to the 2% target since last year.
Despite efforts to control inflation, policymakers are struggling to balance their goals. With official borrowing costs at 4.25%, businesses and households are facing increased pressure. Economists predict that the Bank of England will struggle to reduce borrowing costs as much as hoped due to economic uncertainty.
However, some signs suggest that the rise in inflation may be temporary. Business leaders have warned about the impact of a government NICs increase on prices. Services inflation strengthened, but economists point out that Easter-related data may skew the numbers.
Air fares and recreation prices also rose sharply, while restaurants and hotels saw a cooling effect. Food inflation increased, influenced by the NICs increase. Unemployment has hit its highest level in almost four years, raising concerns for policymakers.
Source: https://www.theguardian.com/business/2025/may/21/bigger-than-expected-inflation-jump-worsens-bank-of-england-dilemma