Energy prices and service costs are responsible for the increase, but what does this latest news mean for interest rates?
UK inflation unexpectedly increased to 3.5% in the 12 months to April, up from 2.6%, according to the latest figures from the Office for National Statistics (ONS) released on 21 May. This marks the highest level in over a year and has sparked some concerns about the cost of living and the future direction of interest rates.
The increase was driven by strong upward pressure from housing and household services, transport and recreation. These sectors saw notable price rises that outweighed a decline in clothing and footwear.
The inflation rise comes just days after data revealed the UK economy grew by a stronger-than-expected 0.7% in the first quarter of 2025. A spokesperson from the British Retail Consortium said that rising inflation was ‘inevitable’ after the additional costs employers face, especially retailers.
What about future base rate reviews?
Rate setters at the Bank of England now warn that energy prices are ‘still likely’ to push inflation to 3.5% or higher in the third quarter, though they expect it to ease afterwards. Financial markets, which had been anticipating up to three interest rate cuts this year, have now become more cautious.
The base rate was cut from 4.5% to 4.25% in the most recent review on 8 May. However, there are predictions of a pause on the prospect of a further rate cut at the next review on 19 June. Some economists believe the Bank of England’s Monetary Policy Committee may hold off on any further rate cuts next month.
As the UK grapples with persistent inflation pressures and an unpredictable economy, all eyes will be on how the Bank of England responds in the coming months. As always, we’ll keep you updated on any significant changes.