Key events
Goldman Sachs economist James Moberly is predicting a rise in UK headline inflation to 3.5%. He explained:
We expect services inflation to rise to 5.1% (from 4.7% in March), with the increase driven by firms passing through additional costs from the hike in employer national insurance contributions (NICs), a significant Easter effect on airfares, and larger price resets for sewerage bills, vehicle excise duty, and some telecoms services. Our forecast is 10bp above the Bank of England’s projection.
A significant increase in water prices is likely to raise core goods inflation to 1.53% (from 1.11% in March). This implies that core inflation will rise to 3.79% (from 3.38% in March), broadly in line with the level implied by the BoE’s forecasts. We also see strength in non-core components; food retailers are particularly exposed to the impact of the employer NICs change, while energy inflation is set to rise given a 6.4% increase in the Ofgem price cap and strong base effects.
What does this mean for interest rates? Moberly said:
A firm services and headline CPI print would further raise the likelihood that the monetary policy committee pauses in June. But with the increase in inflation largely driven by temporary factors, a stronger print would not necessarily be an indication of greater services pressures ahead; in fact, we see services inflation falling back below the BoE’s projections later in the year. Given the restrictive policy stance, notable labour market loosening, a likely deceleration in pay growth, and a softer near-term demand outlook, we therefore continue to expect the Bank to accelerate the pace of cuts in the second half.
Introduction: UK inflation forecast to have jumped in April on back of higher household bills
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Inflation in the UK is expected to have risen back above 3% last month, reflecting higher household bills.
The consumer prices index is forecast to have risen by 3.3% in the 12 months to April, up from 2.6% in March, according to economists polled by Reuters. The figures from the Office for National Statistics are due at 7am BST.
There is an unusually wide range of forecasts, from 2.7% to 3.6%. The core rate of inflation, which strips out volatile energy and food costs, is predicted to have risen to 3.6% from 3.4%.
Many household bills go up in April every year, from council tax to energy and water, but this year the picture is complicated by the impact of higher national insurance contributions for employers, and by the late timing of Easter. This year, people talked about “Awful April”.
Julien Lafargue, chief market strategist at Barclays Private Bank, said:
April is likely to show UK headline inflation jump back up above 3%. This is driven by a number of one-off adjustments including the new National Insurance contributions and the increased National Living Wage. There is also the impact of Easter, which fell squarely in April in 2025 but was in March in 2024, as well as the lovely weather that the UK has experienced in recent weeks.
All this will make for a relatively noisy report at a time when the Bank of England is eagerly trying to figure what to do next. However, beyond the short-term distortions, we believe the overall direction of travel for UK inflation is lower. This should provide the central bank with room to consider at least a couple more interest rate cuts this year, supporting favourable economic conditions going forward.
As Rachel Reeves travels to Banff in Canada for a two-day summit of the G7 finance ministers and central bank governors, she said:
This government is laser-focused on delivering for the British people. That’s why in the past two weeks we have struck three major deals with the US, EU and India that will kickstart economic growth and put more money in people’s pockets as part of our plan for change.
The world is changing, but we have shown in recent weeks that Britain is a strong economy that can navigate that change and we are once again a nation that is open for business.
The UK government has been boosted by three trade deals struck within the last fortnight – with the US, the European Union and India.
The chancellor is expected to meet with the US treasury secretary, Scott Bessent, for the first time since the US-UK trade deal (which, unlike the free trade agreement with India, is not a full trade deal). The UK treasury said it paves the way for further negotiations on tariffs to secure benefits across our economy – such as a future technology partnership between the two countries.
Reeves is also due to meet Canada’s finance minister, François-Philippe Champagne, for the first time since the Canadian election, with the chancellor welcoming Canada’s leadership during its G7 presidency in areas like tackling financial crime and supporting the strong ties between the UK and Canada on trade and economic security.
The Agenda
