Inflation surges to 3.5% unexpectedly

Inflation in the UK jumped suddenly to 3.5% last month – the highest rate recorded in more than a year. The rise came after significant increases in energy costs, water bills and council tax – essentially unavoidable household bills – putting inflation back on the rise again. Water and sewerage bills were the standout, rising by 26.1%, the fastest rate of increase since privatisation in 1989.

The unwanted surge in inflation, as reported by the Office for National Statistics (ONS), came after a decline in the rate of inflation over the first quarter of the year to just 2.6% in March. It was hoped that the rate of inflation would reach the Bank of England’s target of 2.0% and that interest rates would continue to fall as a result.

It was generally expected that inflation would rise, but the jump was more than anticipated. A poll of City economists had forecast a rise of 3.3% in April, while the central bank expected last month’s inflation rate to hit 3.4%.  

“Businesses are experiencing cost pressures amid the rise in national minimum/living wage, employer’s national insurance contributions and regulated price increases. Some of these costs will be passed down to consumers through higher prices.” – Monica George Michail, Economist at the National Institute of Economic and Social Research.  

What is inflation and how is it measured?

Inflation is a measure of how the prices of goods and services have increased over time. Goods are tangible items sold to customers, such as food, while services are tasks performed for the benefit of recipients, such as a haircut. Generally, this increase is measured by considering the cost of things today compared to how much they cost a year ago. The average increase between these prices is demonstrated in the inflation rate.  

Rising interest rates directly affect the cost of living. For example, if the price of a bottle of milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 5p more. Or, in other words, the spending power of your money has decreased by 5%.  

Ideally, the Government wants to keep inflation low and stable. The general mandated target for the Bank of England is 2%. Anything significantly above or below this target is thought to cause issues for the economy.  

The cost of living surged in recent years, with inflation peaking at 11% in 2022 - way above the Bank of England's 2% target, partly due to the increase in energy prices following Russia's invasion of Ukraine.

Inflationary changes often affect many areas of financial life, and can be difficult to keep track of. Our chartered advisers are unbiased, meaning that they can give whole of market advice, and so are best placed to give you a plan tailored exactly to your personal financial goals.  

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.