UK inflation jumps to 3.5% in April, raising concerns over sticky services inflation and renewed pressure on households and markets
After a brief lull, inflation has roared back into the spotlight. The ONS reported today that UK Consumer Price Index (CPI) inflation rose sharply to 3.5% in April, up from 2.6% in March, delivering an unexpected blow to both policymakers and markets. Economists had anticipated a rise, but the scale of the increase — marking the highest rate since January 2024 — underscores the complex inflationary pressures facing the UK economy.The spike was driven by a flurry of early fiscal-year price increases—energy, council tax, water bills and telecom charges chief among them—combined with continued pressure in the services sector.
Wealth managers now face a renewed challenge in assessing persistent price rises, central bank caution and volatile market sentiment. With interest rate cut expectations dialling back and inflation-fighting credibility once again in focus, what should wealth manager be watching — and telling clients — in the weeks ahead?
Inflation surge led by household bills and policy-driven costs
Analysts were united in their diagnosis: April’s inflation was largely a consequence of predictable but painful cost pressures. Danni Hewson of AJ Bell summed it up succinctly: “Everyone knew it was coming… but the jump in headline CPI to 3.5% was higher than expected.”
She pointed to simultaneous price rises from energy suppliers, mobile providers and local authorities, many of which took effect at the start of the new financial year. Easter timing also added upward pressure, particularly on airfares. While some respite was found in falling fuel prices and retail discounts, these were not enough to offset broader increases.
Charles Stanley’s Rob Morgan noted that April marked an “awful” confluence of factors, including the introduction of higher employer National Insurance and minimum wage thresholds – many of which were passed directly onto consumers.
Services inflation a major concern for rate-setters
Perhaps most worrying for the Bank of England is the sharp rise in services inflation to 5.4%. “That’s a huge talking point,” said Morgan. “It suggests the jump in employment costs is bleeding into wider pricing.”
Several commentators flagged that this persistence in services inflation – often seen as a bellwether for domestic cost pressures – will weigh heavily on future rate decisions. Quilter’s Lindsay James said today’s figures “likely mean further holds are imminent”, echoing recent caution from BoE Chief Economist Huw Pill.
Luke Bartholomew at Aberdeen added: “Services inflation looks especially strong… this reinforces the concerns voiced by the Bank that underlying pressures remain sticky.”
Market reaction: Sterling up, FTSE struggles
Markets have already moved to reflect the new inflation reality. Sterling climbed amid expectations that the BoE will need to hold rates higher for longer, putting downward pressure on the FTSE 100, particularly on multinational earners. Hargreaves Lansdown’s Susannah Streeter said investors are “grappling with hotter-than-expected inflation figures and rising geopolitical risks”.
‘Financial markets have reduced expectations for rate cuts this year, with only one reduction looking bolted on. As the pound flexes more muscle it adversely affects the value of multinationals overseas earnings, which is putting pressure on the FTSE 100″ she said.
Patrick O’Donnell at Omnis Investments noted that the upside surprise in inflation complicates the Bank’s job at a time when expectations for easing had been building.
Wealth managers warn of growing financial pressure on households
The practical impact of April’s inflation spike is already being felt. Lily Megson of My Pension Expert said the data is a “timely reminder” of the ongoing financial squeeze. “With households already stretched, the combination of steeper costs and renewed inflation pressures will make it even harder to prioritise saving.”
Alexandra Loydon of St. James’s Place echoed this sentiment: “While the May interest rate cut may have offered some short-term relief, today’s rise likely brings that optimism to a halt.”
Surveys by the firm found 58% of consumers do not feel financially comfortable – a figure unlikely to improve in the wake of April’s data.
Rate cuts delayed, portfolio reviews urgent
The inflation data casts fresh doubt over the trajectory of interest rates in 2025. While a couple of quarter-point cuts are still likely by year-end, most now believe they’ll arrive later than initially hoped. Evelyn Partners’ Daniel Casali said that if services inflation remains stubborn, “the MPC could well delay a further interest rate cut at its next meeting on June 19.”
For wealth managers, the takeaway is clear: planning assumptions around interest rates, consumer sentiment, and client cash flow need to be reviewed in light of persistent inflationary pressures. Daniele Antonucci of Quintet suggested that while some cost drivers are “one-off” in nature, the broader macro environment – from Trump’s tariff policies to domestic fiscal shifts – adds volatility.
Looking ahead: Policy, patience, and positioning
The path of inflation from here is uncertain. Some, like Dynamic Planner’s Abhi Chatterjee, warn against overreacting to a single data point. “As one swallow does not a summer make… patience is what’s needed to comprehend the shifts of this rapidly changing world.”
Still, patience may be in short supply among clients seeing their real incomes eroded once again. As Jeremy Batstone-Carr of Raymond James put it: “From a policy perspective, the Bank of England’s hawkish tilt reflects the probability that a divided Monetary Policy Committee will remain extremely cautious.”
In portfolios, some see opportunity. Quintet’s Antonucci noted an increase in UK equity exposure for its defensiveness and attractive relative valuation. In fixed income, there’s a clear tilt toward shorter-dated gilts to manage inflation and rate risk.
One thing is certain: the ‘higher for longer’ era in UK inflation isn’t over yet. Wealth managers and investors alike will need to keep adjusting – because the “Awful April” of 2025 may have lasting consequences well into the second half of the year.
