Given the persistence of cost-driven inflation, analysts expect inflation to remain above 3 percent in the near term.

by Xinhua writer Zhang Yadong

LONDON, May 26 (Xinhua) -- Britain's inflation rose sharply in April, surpassing expectations and casting doubt on the likelihood of another interest rate cut in June.

Data released on May 21 by the Office for National Statistics (ONS) showed that the Consumer Price Index jumped to 3.5 percent in April from 2.6 percent in March -- the highest level since January 2024. Core inflation also climbed, rising from 3.4 percent to 3.8 percent, while services inflation surged from 4.7 percent to 5.4 percent.

Markets had anticipated a modest uptick in CPI to around 3.3 percent. Earlier this month, the Bank of England (BoE) projected inflation would peak at 3.5 percent in the third quarter of 2024. However, the April figures suggest that inflationary pressures may have been underestimated.

The acceleration was primarily driven by cost-push factors. April marks the beginning of Britain's new fiscal year, a time when many household-related fees are revised upward. Compared to a year ago, energy prices increased by 6.4 percent. Water bills rose by about 10 pounds (about 13.54 U.S. dollars) per month, and council tax jumped by around 40 pounds monthly. An ONS spokesperson noted that these higher household expenses were a major contributor to the inflation spike.

Labour costs also rose significantly. A new budget came into effect in April, introducing increases to employer National Insurance contributions and a 6.7 percent hike in the minimum wage.

The combined impact of higher living costs and rising wages sent inflation sharply higher. Martin Sartorius, principal economist at the Confederation of British Industry, remarked: "April's rise in inflation was broadly expected, driven by a range of cost pressures including higher employer national insurance contributions, the increase in the national living wage, and the hike in the energy price cap."

Kris Hamer, director of insight at the British Retail Consortium, noted that the acceleration in overall inflation during April was driven by a combination of rising costs -- including increases to the minimum wage and employer national insurance contributions -- alongside higher utility bills for energy, water and broadband. These cost pressures have gradually fed through to consumer prices. He added that rising labour costs also contributed to food inflation climbing above 3 percent.

April's data may signal the start of a broader trend. With both living and employment costs continuing to rise, further upward pressure on prices is likely. Stuart Morrison, Research Director at the British Chambers of Commerce, warned that British businesses are facing mounting cost pressures. A recent Chambers survey found that 55 percent of companies expect to raise prices in the months ahead, as wages continue to rise at a pace outstripping inflation.

Given the persistence of cost-driven inflation, analysts expect inflation to remain above 3 percent in the near term. A projection from the National Institute of Economic and Social Research, released on May 8, puts average inflation for 2025 at around 3.3 percent, gradually easing toward the BoE's 2 percent target over the next three years.

These ongoing inflationary pressures are likely to constrain the BoE's ability to lower interest rates further this year. Monica George Michail, a research fellow at the institute, predicted that the BoE may deliver only one additional rate cut in 2025. Earlier in May, the central bank cut rates by 25 basis points -- its second cut since August 2024. But in light of the latest inflation figures, analysts now anticipate a more cautious approach.

At the most recent Monetary Policy Committee meeting, two members had even advocated for a larger 50 basis point cut. However, with inflation continuing to run hot, another reduction in June now appears increasingly unlikely. The BoE is expected to closely monitor inflation dynamics, with any further easing of monetary policy likely to be measured and incremental.