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Inflation spikes putting pressure on Government and Bank of England
Inflation has increased to its highest level in over a year as the Bank of England and Government grapple with rising costs for households.
Inflation has increased to 3.5% on the Consumer Price Index (CPI) measure of inflation according to the Office for National Statistics (ONS).
The rate at which prices rise on average has increased by more than anticipated, up from 2.6% in March 2025.
Chief among price rises leading the rate higher were energy prices (thanks to the increase in the energy price cap), transport cost increases and household services.
Core inflation – which removes more volatile prices such as for food, energy, alcohol and tobacco – increased by 3.8%, while prices for services rose by 5.4%.
Bank of England and Government under pressure
The unexpectedly high increase in inflation has put pressure on the Bank of England and the Government – both of whom have a critical role in managing both price rises and economic growth.
The Bank of England last week cut its base rate to 4.25%. But this week the Bank’s own chief economist Huw Pill warned that it would have to slow its pace of cuts in order to ensure it does not lose control of inflation again.
Before the most recent inflation report, investment markets anticipated that the bank rate would fall to 3.5% by the end of the year. But it has reined in this forecast to an average expectation of 3.9%.
The Government meanwhile is coming under renewed pressure as April’s spike was affected by increases in National Insurance, living wage levels and other tax increases such as council tax.
Bad news for savers and mortgage buyers
The spike in inflation is also potentially bad news for both savers and mortgage buyers.
Savers now face falling rates thanks the Bank of England base rate cuts while inflation steadily eats into their savings returns. While savers can still find inflation-beating rates on the market, the number of accounts is dwindling as providers cut their offers.
Mortgage buyers have benefited from recent cuts in the mortgage market as lenders attempt to position themselves more competitively while the base rate comes down.
But with the pace of cuts now in doubt, it is likely that the number of improved deals could slow precipitously.
Savers need to consider if their long-term savings might be better put to use via investments, while mortgage shoppers should ensure they are looking for the best deal possible and speaking to a broker who can help find the best mortgage for their situations.
Photo credits: Pexels
