Britain suffered a bigger-than-expected inflation surge in April, including in areas watched closely by the Bank of England which investors now believe will have to slow its already gradual pace of interest rate cuts.
Inflation leapt to 3.5% in April from 2.6% in March, the Office for National Statistics said, the highest reading since January 2024 and the largest increase between two months since 2022 when inflation was rocketing above 10%.
A jump in air fares over the Easter holiday was a driver of the sharp climb.
A Reuters poll of economists had pointed to a reading of 3.3% in consumer price inflation in April. The Bank of England earlier this month projected inflation of 3.4%.
The data will add to unease over the outlook for Britain's economy which grew strongly in early 2025 but is likely to slow in the second half of the year.
Finance minister Rachel Reeves said she was "disappointed" by the inflation figures which further reduced the chance of an interest rate cut in the coming months in the eyes of investors.
"We are long way from the double-digit inflation we saw under the previous administration, but I'm determined that we go further and faster to put more money in people's pockets," Reeves said.
Sterling rose against the US dollar after the figures were published and was up by almost a third of a cent at 0640 GMT.
The chance of a rate cut in August was cut to 40% by investors, down from 60% before the inflation data.
"This data should call into question whether there is a cut ... in August," Patrick O'Donnell, senior investment strategist at Omnis Investments, said.
'AWFUL APRIL'
Interest rate futures pricing suggested investors saw about 35 basis points of BoE rate cuts by the end of 2025, little changed from Tuesday.
Services price inflation - a key metric of domestic inflation pressure - leapt to 5.4% in annual terms in April, above all forecasts in the Reuters poll for an increase to 4.8%. It was far above the BoE's prediction of a reading of 5.0% for April.
In April alone, services prices leapt 2.2% - the biggest monthly increase in 34 years.
The ONS said the timing of the Easter holiday, which took place in April this year, was probably a contributor to the big jump in air fares which surged by 27.5% from March, the second-biggest month-on-month increase on record.
British newspapers had billed last month as "Awful April" because of increases in gas, electricity and water prices, alongside higher taxes on employers - all of which are likely to push up prices.
The BoE has predicted that inflation will hit 3.7% by September.
Some officials at the central bank disagree with its key assumption that the climb in inflation will not have longer-running effects on pricing behaviour.
A survey of employers published earlier on Wednesday suggested employers were starting to lower their pay increases for staff.
The BoE lowered interest rates by a quarter point to 4.25% on May 8 in a three-way split vote, with two members of the Monetary Policy Committee favouring a bigger cut, and two - including Pill - favouring a hold.
