Higher energy prices, water bills, and tax rises contributed to higher than expected UK inflation of 3.5% in April, according to data released by the Office for National Statistics on Wednesday. Analysts polled by Reuters had predicted inflation of 3.3%; the higher figure has prompted swap markets to now price in just one further interest rate cut this year compared to two cuts before the data was released. Services inflation remains far ahead of Bank of England forecasts, measuring at 5.4% last month, significantly above the expectation of 4.8% and March’s figure of 4.7%. Core inflation is on a similar trend. The pound reached its highest level against the dollar since 2022 off the back of the data, reaching $1.347 before falling back slightly.
Services inflation remains far ahead of Bank of England forecasts, measuring at 5.4% last month, significantly above the expectation of 4.8% and March’s figure of 4.7%.
In data released by the ONS on Thursday, UK borrowing was shown to have unexpectedly increased in April to £20.2bn compared to £19.1bn a year earlier. Economists polled by Reuters had forecasted a fall in borrowing to £17.9bn, but the much higher figure was down to an increase in spending on public services and benefits, completely eclipsing the increase in receipts attributable to higher national insurance contributions. This piles additional pressure on the government, who this week announced a partial U-turn on the decision to scrap winter fuel payments for pensioners, with some Labour MPs now calling on Chancellor Rachel Reeves to reduce welfare cuts and instead raises taxes at her next budget in the autumn.
In data released by the ONS on Thursday, UK borrowing was shown to have unexpectedly increased in April to £20.2bn compared to £19.1bn a year earlier.
On Wednesday, US government bonds and stocks fell as investors worried about the rising debt burden in anticipation of President Trump’s proposed “big, beautiful bill” passing through the House of Representatives. The bill would extend tax cuts made during Trump’s first term in 2017, which are anticipated to add $3tn to the US debt over the next decade.
Our specialist's final thought
"The S&P500 fell 1.6% on the day. However, on Thursday, the bill passed by just one vote, cutting state-backed healthcare spending and clean-energy tax credits. The S&P500 opened marginally lower having already priced in the expected outcome the previous day."
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