In April 2025, UK inflation accelerated more sharply than expected, with the consumer prices index (CPI) rising by 3.5 percent year-over-year from 2.6 percent in March. Month-over-month, inflation jumped 1.2 percent, compared to 0.3 percent in the previous month and 0.2 percent above the consensus forecast.

Core inflation, which strips out volatile items such as food and energy, also edged higher to 3.8 percent, indicating underlying price pressures remain persistent. Notably, prices for goods rose from 0.6 percent to 1.7 percent, while services inflation surged from 4.7 percent to 5.4 percent, driven by rising costs in housing, transport, and recreational sectors.

The broader CPIH measure, which includes owner occupiers' housing costs, climbed to 4.1 percent from 3.4 percent annually, highlighting the role of housing in fuelling inflationary pressure. Although clothing and footwear provided some downward drag, it was insufficient to counterbalance the broad-based increases elsewhere.

These figures suggest that inflation is not only resurfacing but becoming increasingly embedded in services, which may pose challenges for monetary policy, especially if wage growth follows suit. The data may also signal potential delays in anticipated interest rate cuts, as the Bank of England weighs the risk of premature easing amid stubbornly high core and services inflation. The latest update takes the RPI to 50 and the RPI-P to 42, meaning that economic activities are well ahead of market expectations in the UK.

UK annual inflation seen at 3.3 percent in April versus 2.6 percent in March. Month on month, the consensus looks for an increase of 1.0 percent after 0.3 percent in March, with a bump in energy costs largely to blame.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the UK, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. Inflation is an increase in the overall price level of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.