Is Inflation Making a Comeback in the UK?
The latest inflation figures for April have once again pushed beyond the Bank of England‘s designated target range, prompting fresh scrutiny of the UK’s economic landscape. So what caused the latest inflation spike?
The Bank of England’s Inflation Mandate
The Bank of England operates with an annual inflation target of 2%, based on the Consumer Prices Index (CPI), as set by the Chancellor. A crucial part of this mandate is accountability: if inflation deviates by more than 1% from this target in either direction, the Bank’s Governor is obligated to write to the Chancellor. This letter must explain the situation and outline the measures being taken to bring CPI back within the acceptable range. Should inflation remain off-target three months later, a follow-up letter is required.
A Familiar Correspondence for the Governor
Until the publication of the April 2025 inflation figures, the last such letter from the current Governor, Andrew Bailey, was sent in March 2024, following February 2024’s CPI reading of 3.4%. By that point, Mr. Bailey had become quite accustomed to penning these explanations, as inflation had consistently stayed above 3% since August 2021.
The Latest Inflation Spike: Causes and Expectations
This year’s notable spike in annual inflation, rising from 2.6% in March to 3.5% in April, triggered Mr. Bailey’s most recent letter. This increase, however, was largely anticipated. The Bank of England’s own forecasts, released alongside their May interest rate announcement, had projected April inflation to reach 3.4%, with an expectation of peaking at 3.7% by September.
Government-Linked Drivers of the Increase
Ironically, the two primary contributors to the 0.9% rise in April’s inflation were closely tied to government-related entities.
- Utility Price Caps: The largest single contribution came from the increase in various regional utility price caps across Great Britain, which are set by OFGEM, a non-ministerial Government department. This was particularly impactful because the 6.4% increase in April 2025 replaced a significant decrease of approximately 12% that had occurred in April 2024.
- Water Bill Hikes: Similarly, OFWAT, another government-status body, raised water bills for England and Wales by an average of 26%, albeit with considerable regional variations.
Long-Term Inflation Trends and Your Finances
While this recent utility-driven surge in inflation is not currently expected to signal a sustained longer-term trend, it follows on the heels of the broader inflationary wave experienced earlier this decade. Cumulatively, since the beginning of 2020, average prices have climbed by an alarming 27.7%. Had inflation consistently remained at the targeted 2.0%, the increase would have been a far more modest 11.1%. If your long-term financial or retirement plans were built on an assumption of 2% inflation, they may now require a comprehensive review.
For personalised guidance on how current and future inflation trends might impact your financial planning and retirement goals, contact Chartwell Wealth Management today. One of our expert advisors will be in touch.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
