The April inflation figure fell outside the Bank of England’s target range.
Source: Office for National Statistics
The Bank of England targets an annual inflation target of 2%, as set by the Chancellor based on the Consumer Prices Index (CPI). If inflation stays are more than 1% on either side of the target, the Bank’s Governor must write to the Chancellor explaining what has happened and outlining the steps to bring CPI back within the target range. If inflation is remains off-target three months later, the Governor must write another letter.
The most recent such letter from Governor Andrew Bailey followed the release of April 2025 inflation figures, which showed CPI climbing to 3.5%, up from 2.6% in March. This marked his first inflation letter since March 2024, when CPI stood at 3.4% in February. By then, Mr Bailey was already well-versed in this form of communication, with inflation having exceeded 3% consistently since August 2021.
April’s jump in inflation had been widely expected. In its May interest rate report, the Bank forecasted inflation to reach 3.4% in April and to peak at 3.7% by September.
Ironically, the key drivers behind the sharp 0.9% increase were closely tied to government-regulated sectors. The biggest factor was the rise in regional utility price caps across Great Britain, set by OFGEM, a non-ministerial government department. Similarly, OFWAT, another such body, approved an average 26% rise in water bills for England and Wales, with notable regional differences. The utility price cap change had a particularly strong impact because it replaced a 12% cut in April 2024 with a 6.4% increase in April 2025.
Although this inflation surge is currently viewed as a short-term effect rather than the start of a longer trend, it follows a period of sustained high inflation. Since the start of 2020, average prices have risen by 27.7%. In contrast, had inflation remained steady at 2%, prices would have risen just 11.1%. For those with retirement plans based on that 2% assumption, it may be time to reassess.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
13th June 2025
