Households have been warned of at least months of pain as the Bank of England forecast higher-than-expected inflation this summer due to rising bills. The Bank is warning that inflation will hit a peak of 3.7 per cent following a multitude of predicted hikes to household expenses, from food to energy and water and Council Tax bills.
Inflation is set to only fall back to the Bank’s 2 per cent target in the final quarter of 2027 – about six months later than previously thought. It follows analysts Cornwall Insight revising up its previous forecast of a further 1 per cent increase to the energy price cap in April, now suggesting households will face an almost 3 per cent hike to the current average yearly bill of £1,738 that came into effect on January 1.
However Craig Lowrey, principal consultant at Cornwall Insight, said the turbulence in wholesale markets – “a level of volatility we haven’t seen for months” – suggested caution should be exercised around predictions, “which could very well increase or decrease several times before the April cap is set”.
Water bills are also set to increase by 9.9 per cent, which means households will pay an extra £3.68 each month from April 1 for water and wastewater services.
The British Retail Consortium has said modelling by the trade association and industry chiefs indicate there is “little hope of prices going anywhere but up” as retailers face higher National Insurance, National Living Wage and new packaging costs.
On Thursday, Public Accounts Committee chairman Sir Geoffrey Clifton-Brown raised the pressures facing households during a Commons select committee hearing into energy debt, quoting from a document from consultancy service Clear saying the value of energy debt increased between 2023 and 2024 by a “staggering” 33 per cent.
Laith Khalaf, head of investment analysis at AJ Bell, said: “The most striking announcement from the Bank of England today is not the cut in interest rates, but the prospect of inflation rising to 3.7 per cent this year while its forecasts show the economy continuing to flirt with recession.
“Rising prices will not make for happy consumers who might have hoped that high inflation is in the rear-view mirror.
“CPI at 3.7% is nowhere near the double-digit inflation we saw at the height of the cost-of-living crisis, but it adds to the cumulative load of price rises.”
Mr Khalaf continued: “The primary culprit for rising inflation is higher energy prices, but the Chancellor’s Budget policies are also expected to push up prices. Namely the hike in national insurance, VAT on private schools and the rise in the cap on bus fares.
“The Bank hasn’t factored into its forecasts any effects from (US President Donald) Trump’s trade tariffs at the moment, seeing as they have only just started to emerge and are highly uncertain in their formulation and implementation. However, we know rising global trade tariffs do pose a further threat to UK economic growth and the inflationary environment.
“Overall, the Bank is painting a pretty bleak, stagflationary picture for 2025, which could get worse if Trump pushes through with widespread trade tariffs.
“It’s not the news anyone wants to hear, but then again, we’re getting used to it.”