What is inflation and what does it mean for you?

21 May 2025, 10:05 | Updated: 21 May 2025, 10:16

UK inflation has soared to its highest level in more than a year after an “awful April” of household bill increases for families.

The Office for National Statistics said on Wednesday that Consumer Prices Index inflation hit 3.5 per cent in April, up from 2.6 per cent in March and the highest level since January 2024.

It comes after Ofgem’s energy price cap rose by 6.4 per cent in April, having fallen a year earlier, alongside a raft of bill rises for under-pressure households, including steep increases to water charges, council tax, mobile and broadband tariffs.

Chancellor Rachel Reeves said she is “disappointed” with the jump in inflation, but pledged to go “further and faster” with economic plans.

She said: “I am disappointed with these figures because I know cost-of living pressures are still weighing down on working people.

“We are a 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.”

Here is what it means.

What is inflation?

Inflation is the term used to describe the rising price of goods and services.

The inflation rate refers to how quickly prices are going up.

April’s inflation rate of 3.5 per cent means that if an item cost £100 a year ago, the same thing would now cost £103.50.

It is up from the 2.6 per cent inflation rate recorded in March, meaning that prices are still increasing and at a faster rate.

Inflation is measured by the Office of National Statistics (ONS) using the Consumer Prices Index (CPI) measure - where adjudicators will total up the cost of a notional shopping basket of predetermined goods and averaging them. The ONS updates what goes in the basket from time to time to reflect shopping habits.

What is the inflation rate in the UK today?

As of May 21, the ONS has calculated that the rate is 3.5 per cent. Inflation is said to have gone up after a huge rise in water bills, energy costs and council tax - a phenomenon dubbed “awful April”.

The ONS’s acting director-general Grant Fitzner said: “Significant increases in household bills caused inflation to climb steeply.

“Gas and electricity bills rose this month compared with sharp falls at the same time last year due to changes to the Ofgem energy price cap.

“Water and sewerage bills also rose strongly this year, as did vehicle excise duty, which all pushed the headline rate up to its highest level since the beginning of last year.”

Will inflation stay high?

Last month’s higher-than-expected inflation may also see the Bank of England tread more cautiously with cuts to interest rates after this month’s reduction from 4.5 per cent to 4.25 per cent, economists said.

Rob Wood, at Pantheon Macroeconomics, said he believes inflation will stay around 3.5 per cent for the rest of the year.

He said: “We think the Monetary Policy Committee will have to proceed cautiously.

“We stick with two more rate cuts this year, but are very close to reducing that to only one.”

The unwelcome increase back above 3 per cent comes after some recent respite, with inflation having fallen for the two previous months.

The ONS said water inflation across housing, water and energy bills surged by 7.8 per cent in the year to April, which was the highest since June 2023.

Within this, water and sewerage charges raced 26.1 per cent higher during April – the largest rise since at least February 1988, according to the ONS.