Britons are bracing for a burst of higher inflation for much of this year as many household bills jump next month, a revival of the cost-of-living pressures that have squeezed household budgets in recent years.
Next month, the average annual energy bill is set to rise 6.4 percent as the price cap resets. Water bills, which are also regulated, will climb an average 26 percent. At the same time, prices for services like broadband internet and cellphone, which often reset at the start of a new fiscal year and are linked to inflation, are rising about 6 percent.
April is also the start of a new tax year, with employers facing higher taxes on their employees’ wages.
Britain’s annual inflation rate is expected to peak at 3.7 percent in the third quarter of this year, accelerating from 3 percent in January, the Bank of England forecast. The central bank, which held interest rates on Thursday at 4.5 percent, has been cautious in its approach to lowering rates because of signs of stubborn price pressures, like robust wage growth and the prospect that a boost in government spending this year and next could also keep prices lofty.
Though there has been evidence that inflation was returning to the bank’s 2 percent target, the uncertainty policymakers face has grown substantially in recent weeks because of the threat of a global trade war and governments in Europe quickly rethinking their budgets to accommodate increased spending on defense.
“There’s a lot of economic uncertainty at the moment,” Andrew Bailey, the governor of the Bank of England, said in a statement on Thursday. Policymakers, he added, are watching domestic and global economic changes “very closely.”
“Whatever happens, it’s our job to make sure that inflation stays low and stable,” he said.
Policymakers have cut rates by three-quarters of a percent since last summer, a relatively slow pace of easing as inflation has moved away from the central bank’s 2 percent target. In comparison, policymakers in the eurozone have cut rates 1.5 percentage points. The Federal Reserve cut rates by 1 percentage point last year but U.S. officials have since held them steady, warning that higher tariffs could delay inflation returning to target.
Policymakers at the Bank of England said they would take a “gradual and careful approach” to lowering rates, though they still expected rates to be on a “gradually declining path.”
Inflation is expected to slow again toward the end of the year, but the minutes from the central bank’s meeting this week said policymakers “will pay close attention to any consequent signs of more lasting inflationary pressures.”
Next week, Rachel Reeves, the chancellor of the Exchequer, will deliver an update to the government’s tax and spending plans, which are likely to include reduced funding for benefits to balance higher debt costs.
“There’s still work to do to ease the cost of living,” Ms. Reeves said on Thursday, adding that she was “fighting every day to put more money in the pockets of working people.”
“In a changing world I’m determined to go further and faster to kick-start growth and bring in new era of stability, security and renewal that protects working people and keeps our country safe,” she said.
There has been some good news for Britons. Data published earlier on Thursday showed that average pay in Britain continued to outstrip inflation, a trend that started about two years ago. Next month, the national living wage will increase nearly 7 percent, improving the pay of low-wage workers.
“In the year 2025, people are better off than they were in 2024” said Adrian Pabst, the deputy director for public policy at the National Institute of Economic and Social Research. “There has been a recovery of living standards compared with the worst of the cost-of-living crisis, the worse of inflation.”
But, he added, many households still have not made up a shortfall in earnings since the pandemic after a surge in inflation. For the poorest 40 percent of households, that recovery will not be complete until next year.
The post As Britons Prepare for Inflation Jump, Bank of England Remains Cautious appeared first on New York Times.
