Higher bills and taxes push inflation to 3.5%

Sat 24 May 2025

Inflation surged to 3.5% in April, its highest level for 15 months, threatening to delay any further interest rate cuts and the boost they would have provided to the property market.

The rise, which exceeded economists’ predictions of 3.3%, was largely driven by increases in household energy bills, water costs, council tax, airfares and services inflation, which grew by 5.4%. Just as month ago inflation dropped from 2.8% to 2.6%, making the latest figure surprising.

SETBACK

It is a setback for both homebuyers and the wider economy, with the Bank of England now expected to take a more cautious approach to rate reductions.

The money markets have already been pricing in just one more quarter-point cut over the next 12 months, rather than the two or three before the data was released, and there is only a 50% chance of a cut in August.

Chancellor Rachel Reeves expressed disappointment at the figures, acknowledging that the “cost of living pressures are still weighing down on working people.” However, she insisted the economy was still in better shape than it was during the previous administration’s period of double-digit inflation.