UK inflation rise cools interest rate cut hopes

Inflation in the United Kingdom rose more than expected to reach a 15-month high of 3.5 percent in April, fuelled by higher utility bills and tax increases, an outcome that has led to a cooling of bets on further interest rate cuts from central bank the Bank of England, or BoE.

The figure, published on Wednesday by the Office for National Statistics, was higher than March's 2.6 percent and also the 3.3 percent figure that had been predicted by market analysts polled by Reuters.

Earlier this month, the BoE cut interest rates from 4.5 percent to 4.25 percent, with its governor Andrew Bailey saying that he would not make predictions about further reductions, but that he was "still of the view that the path, gradually and carefully, is downwards".

But now the BoE's chief economist Huw Pill has said that quarterly cuts of 0.25 percentage points since last summer were "too rapid", and that future reductions need to be more cautious, or inflation could become a bigger problem.

The BoE has predicted inflation will peak at 3.7 percent later this year before falling back to its long-term target of 2 percent by 2027, and James Smith, an economist at Dutch banking company ING, told the Financial Times that the latest figures put "the final nail in the coffin of a BoE (interest) rate cut in June".

"Although much of the increase in inflation in April can be put down to higher utility bills, airfares, and a hike in road tax," said Andrew Wishart, an economist at Berenberg Bank, "the big picture remains that underlying inflation is too strong for the BoE to achieve its 2 percent inflation target".

The government's finance minister, Chancellor of the Exchequer Rachel Reeves, admitted to being "disappointed" by the figures, and said that they reflected the ongoing challenges of the cost of living crisis, but added "we are a long way from the double-digit inflation we saw under the previous administration, but I'm determined that we go further and faster to put more money in people's pockets".

Mel Stride, shadow chancellor the opposition Conservative Party, said consumers were "paying the price" for Reeves's choices. "Higher inflation could also mean interest rates stay higher for longer, hitting family finances hard," he added.

On social media platform X, personal finance expert Martin Lewis wrote that the rise was "a strong reminder that inflation figures are about what has already happened. Not, as commonly presented … a predictor of what will happen. This rise, mainly due to April's 6.4 percent hike in energy bills, and 20 percent in water bills … was long known about".