UK inflation surges to hotter-than-expected 3.5% in April

The U.K.’s annual inflation rate hit 3.5% in April, coming in above analyst expectations, according to data released by the Office for National Statistics (ONS) on Wednesday.

Economists polled by Reuters had anticipated the consumer price index would reach 3.3% in the twelve months to April.

The latest data release comes against a recent trend of cooling inflation, with the rate of price rises slowing to 2.8% in February and 2.6% in March.

Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, rose by 3.8% in the year to April, up from 3.4% in the twelve months to March.

The largest upward contributions to the monthly change in the inflation rate came from housing and household services, transport, and recreation and culture. On the other end of the spectrum, the largest — partially offsetting — downward contribution was from clothing and footwear, the ONS said in a press release.

Economists had expected the rise, attributing it largely to the increase in the energy price cap — linked to the maximum price that energy suppliers can charge — as well as a number of one-off adjustments including domestic business tax rises introduced in April, the Easter holidays and recent good weather.

The latest data “will make for a relatively noisy report at a time when the Bank of England is eagerly trying to figure what to do next,” Julien Lafargue, chief market strategist at Barclays Private Bank, said in emailed comments Tuesday.

“However, beyond the short-term distortions, we believe the overall direction of travel for UK inflation is lower. This should provide the central bank with room to consider at least a couple more interest rate cuts this year, supporting favourable economic conditions going forward,” he added.

The British pound jumped by around 0.4% against the U.S. dollar immediately after the U.K.’s annual inflation print for April was published.

British Chancellor Rachel Reeves said Wednesday that she was “disappointed” with the latest data and that “cost of living pressures are still weighing down on working people.”

The Bank of England had widely signaled that it expected a temporary rise in inflation to 3.7% in the third quarter. That increase in price growth, the monetary policy committee said, would come about partly due to hikes in energy prices and in some regulated prices, such as water bills.

The predicted rise in inflation was not enough to deter the BOE from cutting its key interest rate to 4.25% at its last meeting in early May, however, given ongoing uncertainty around the wider economic picture.

The BOE at the time insisted that any further interest rate cuts would be “gradual and careful” as it looks to bring the rate of inflation down to its target of 2%. The pace of rate cuts could be subject to change, however, if U.S. trade…