Investing.com - U.K. inflation jumped sharply in April, hitting its highest level in over a year, likely causing the Bank of England to delay any further interest rate cuts.
Annual consumer price inflation rose 3.5% in March, above the 2.6% seen the prior month, and considerably above the U.K. central bank’s 2.0% medium-term target.
The monthly rate rose 1.2%, a considerable jump from the 0.3% seen in March.
Analysts had expected the CPI to rise 3.3% on an annual basis, and 1.1% on the month.
Core CPI, which excludes volatile energy and food prices, rose 1.4% on a monthly basis, with the annual rate at 3.8%, up from 3.4% in the prior month.
This hefty jump in inflation came as the country faced a confluence of factors that are likely to drive up prices, including substantial hikes in energy and water bills, adjustments to vehicle excise duty, and rises to council taxes.
“What’s more, payroll tax hikes and the minimum wage increase that kicked in at the start of April are likely to be the perfect excuse for a range of firms to jack up prices,” said Robert Wood, Pantheon’s chief U.K. economist.
The Bank of England cut interest rates by 25 basis points to 4.25% at its policy meeting near the start of May, but since then, the Bank’s chief economist Huw Pill has warned that interest rate cuts have been coming “a little too fast” given developments with inflation.
Pill voted against the recent cut but was outnumbered by other committee members.
Looking ahead, Deutsche Bank (ETR:DBKGn) expects a bumpy two quarters before inflation begins to descend.
They foresee headline CPI stalling at around 3.4% year-over-year for the rest of the year, peaking at 3.65% year-over-year in September.
Core CPI is also expected to remain elevated at 3.6% year-over-year over the same period. However, a gradual slowdown in services CPI is anticipated, dropping to around 4.4% year-over-year in the fourth quarter of 2025.
Deutsche Bank analysts project an average annual CPI rate of 3.3% for this year, 2.4% for next year, and 2% for 2027.