Inflation jumped sharply in April 2025. What’s going on?

The rollercoaster ride of inflation was set in motion at the start of this decade. In August 2020 the annual inflation rate, as measured by the Consumer Prices Index (CPI), had dropped to a mere 0.2%. Just over two years later, inflation peaked at 11.1% and then generally declined until the April figure was published.

April’s published 3.5% CPI rate would have been 3.4% (the same as May’s), were it not for a calculation error. It meant the Governor of the Bank of England was required to write a letter to the Chancellor explaining why inflation was over 1% above target and what actions were planned to rein it back to 2%. In reality, as far back as early February the Bank was expecting inflation “to rise quite sharply in the near term, to 3.7%”. The Bank’s forecast highlights one of the oddities about annual inflation. While longer-term projections are notoriously difficult to get right (as played out over 2022/23), short-term estimates are often much easier to make. In the case of April 2025, the Bank could see two major changes arriving:

• A new Ofgem quarterly utility price cap that would replace the 12.3% fall of a year ago with a rise of 6.4%.
• An Ofwat-determined increase in annual water and sewerage charges for England and Wales that averaged 26%.

Inflation is due to peak in September, then steadily decline to around 2% early in 2027. However, any inflation erodes purchasing power; since January 2020 the buying power of £1 has shrivelled to 78.3p.

That decline of over a fifth affects every aspect of your financial planning – retirement, savings goals, health and life protection – which has not been inflation-adjusted in the last five and a half years. We can help review your financial goals in case the shifting CPI has knocked you off target.