The UK inflation rose by more than a 15-month high of 3.5%, prompting traders to lower interest rates from the Bank of England to lower interest rates.
The National Bureau of Statistics figures were both higher on Wednesday than the 3.3% forecast by Reuters’ voters and 2.6% of analysts in March.
The rise is driven by higher energy costs after regulators raise household price caps and increased water and road taxes, ONS said. Higher air tickets also contributed.
Service inflation is a key measure of basic price pressure for interest rate setters, rising to 5.4% in April, eclipsing estimates of 4.8% expected by analysts, compared with 4.7% in March.
Suren Thiru, director of economics at the ICAEW accounting agency, said last month that “highlighted the brutal blow of the coveted bill rises and tax rate hikes in April”. ING's economist James Smith said the numbers cut the last nail in the Bank of England's coffin in June.
According to levels implied by the swap market, traders restored their bets to a quarter-point rate next year, and lowered a quarter-point rate next year. Since the beginning of 2022, the pound has climbed to its highest level at $1.347. Later it returned to $1.341.
Analysts say the Labor government's increase in state insurance contributions to employers is also driving prices. Stuart Morrison, research manager at the British Chamber of Commerce, said the company is facing "perfect cost pressure" including national insurance, rising minimum wages and global tariffs.
CPI inflation in the UK is much higher than readings at Germany and France and the EU.
Since August, BOE has vowed to reduce borrowing costs with a "cautious and gradual approach".
However, the Monetary Policy Committee was allocated in this month’s decision to lower interest rates to its lowest level since 2023. On Tuesday, chief economist Huw Pill said he was worried that BOE had lowered interest rates too quickly and that the momentum of inflation was "stuttering".
These figures are setbacks for Rachel Reeves, who has been trying to capitalize on the number of more than expected first-quarter growth figures as well as the trio deal.
Reeves responded to the amount of inflation, saying she was “disappointed” and admitted that “the pressure of life is still stressing the laborers.”
"It's a long way from the double inflation seen under the previous government, but I'm sure we're going further and putting more money in people's pockets faster," she added.
BOE predicts inflation will reach 3.7% later this year before dropping to a target of 2% in 2027. But analysts warned that April data showed higher than expected inflation in some parts of the economy. The core inflation rate excluding energy and food is 3.8% in forecast, while the service inflation rate is far ahead of BOE's own forecast this month.
Analysts say partly is that the April price collection date matches the Easter holiday, which is different from 2024.
The question for BOE is whether they believe that the large share of April accelerated is driven by unstable or one-time factors, or whether there are signs that potential inflation is still too hot. One area of concern is the rapid growth of wages, with an average weekly wage annual growth rate of 5.6%, excluding bonuses, for the three months ending March.
"While much of the increase in inflation in April can be attributed to higher utility bills, air tickets and road taxes, there is still a basic inflation for BOE to achieve its 2% inflation target," said Andrew Wishart of Berenberg Bank.
The biennial government bond yield is sensitive to changes in interest rate expectations, with a 0.04 percentage point rise to 4.09% in early trading.
"Families are paying for the choice of Labor Prime Minister," Shadow Chancellor Shadow Chancellor said. "Higher inflation may also mean longer interest rates will continue to be higher and work to break into household finances."