The latest figures from the Office for National Statistics reveal that UK inflation surged to 3.5% in April, up from 2.6% in March and surpassing economists’ expectations. This marks the highest annual inflation rate in more than a year and signals a sudden reversal after several months of cooling price growth. The jump has been attributed primarily to sharp increases in household bills, including energy, water, council tax, and other essential services.
Below, we break down the pros and cons of this inflation spike and what it could mean for households, businesses, and policymakers.
Why Did Inflation Rise?
- Household Bills: The most significant contributors were a 6.4% rise in the energy price cap, sharp increases in water bills (with some households facing a £10 monthly hike), and higher council tax rates.
- Broad-Based Impact: Increases were also seen in mobile, broadband, TV licence costs, car tax, and stamp duty.
- Core Inflation: Even when excluding volatile items like energy and food, core inflation climbed to 3.8% from 3.4% in March, indicating broad-based price pressures.
Pros and Cons of Rising Inflation
| Pros | Cons |
|---|---|
| 1. Eases Debt Burden for Some: For those with fixed-rate debts (like mortgages or loans), higher inflation can make repayments more manageable in real terms, as wages may rise and the value of money owed erodes over time. | 1. Cost of Living Crisis Worsens: Households face higher bills for essentials like energy, water, and council tax, squeezing budgets and reducing disposable income. |
| 2. Boosts Wage Growth: Persistent inflation can drive employers to increase wages to attract and retain staff, potentially benefiting workers in the short term. | 2. Interest Rates Stay Higher: The Bank of England is now under pressure to keep interest rates higher for longer, making borrowing more expensive for mortgages, loans, and credit cards. |
| 3. Encourages Spending and Investment: Anticipation of rising prices can prompt consumers and businesses to spend and invest sooner, potentially supporting economic growth. | 3. Mortgage and Rent Pain: Higher inflation and the prospect of fewer rate cuts mean mortgage rates could remain elevated, impacting homeowners and renters alike. |
| 4. Government Debt Value Falls: Inflation reduces the real value of government debt, making it easier for the government to manage its liabilities. | 4. Hits Savings: The value of cash savings erodes faster, especially if interest rates on savings accounts do not keep pace with inflation. |
| 5. Business Uncertainty: Businesses face higher input costs and uncertainty, making it harder to plan and invest for the future. |
What Happens Next?
- Interest Rate Outlook: The Bank of England had recently cut interest rates, but this unexpected inflation jump could delay further cuts. Markets now expect the Bank to hold rates steady in the near term, with fewer cuts likely by year-end.
- Political Pressure: The Labour government, which has pledged to ease living costs, faces renewed pressure as households feel the pinch from rising bills.
- Economic Growth Risks: While the UK economy showed resilience in early 2025, economists warn that higher consumer bills could dampen spending and slow growth in the coming months.
Conclusion
The rise in UK inflation to 3.5% in April is a double-edged sword. While it may offer some relief to certain debtors and potentially boost wage growth, the overwhelming impact is negative for most households, who now face higher bills and a tougher cost-of-living environment. With the Bank of England likely to keep interest rates higher for longer, the path to lower inflation—and a return to economic stability—looks set to be gradual and challenging.
If you’re feeling the pressure from rising costs and worried about managing your finances, remember you don’t have to face these challenges alone. At My Debt Plan, our experienced advisers can help you review your situation, explore solutions for managing or reducing debt, and offer practical guidance tailored to your needs.
