UK inflation rises to 3.5% in April

The UK’s inflation rate, as measured by the Consumer Prices Index (CPI), rose to 3.5% in April 2025, up from 2.6% in March, marking the highest level in over a year.

This unexpected jump has reignited uncertainties about the cost of living and the broader economic outlook, particularly for savers and investors.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is a way to measure how much the prices of everyday goods and services are changing over time — things like food, clothing, transport, and housing.

Imagine a shopping basket filled with items a typical household buys regularly. The CPI tracks how the total cost of that basket changes from month to month or year to year. If the price goes up, it means the cost of living is rising — that’s inflation. If it goes down, that’s deflation.

Why is it important?

• For individuals: It affects your wallet. If prices rise faster than your income, your purchasing power shrinks.

• For businesses: It helps with planning, pricing, and wage decisions.

• For governments and central banks: It’s a key signal for setting interest rates and economic policy.

What’s driving the rise?

According to the Office for National Statistics (ONS), the main contributors to the inflation surge were increases in housing and household services, transport, and recreation and culture. On a monthly basis, prices rose by 1.2%, a sharp acceleration compared to the 0.3% rise in April 2024.

Core inflation, which excludes volatile items like energy and food, also climbed to 3.8%, suggesting that underlying price pressures remain persistent. This complicates the Bank of England’s task of steering inflation back to its 2% target.

Implications for savers

For savers, rising inflation is a double-edged sword. On one hand, it erodes the real value of money held in low-interest savings accounts. If your savings are earning 2% interest while inflation is at 3.5%, your purchasing power is effectively shrinking by about 1.5% annually.

However, the inflation uptick could prompt the Bank of England to maintain or even raise interest rates, which might lead to better returns on savings products. Already, some banks have begun offering higher rates on fixed-term savings accounts and cash ISAs. Savers should shop around to ensure their money held in cash is working as hard as possible.

Impact on investors

For investors, the inflation spike presents both risks and opportunities. Equities can help protect your money from losing value when prices go up, particularly shares in companies with strong pricing power that can pass on higher costs to consumers. Sectors like energy, commodities, and consumer staples often perform well in inflationary environments.

However, higher inflation can also lead to tighter monetary policy. If the Bank of England raises interest rates to combat inflation, borrowing costs will rise, potentially slowing economic growth and impacting corporate profits. This could weigh on stock valuations, particularly in interest-sensitive sectors like real estate and utilities.

Bond investors face a more direct challenge. When inflation goes up, bond interest rates usually rise, but the value of existing bonds tends to go down. Those holding long-duration bonds may see the value of their holdings decline. Inflation-linked bonds, however, could offer some protection.

Looking ahead

The inflation surge raises questions about the trajectory of UK monetary policy. While wage growth has outpaced inflation in recent months, the persistence of core inflation may force the Bank of England to keep interest rates elevated for longer than previously anticipated.

For both savers and investors, the key will be adaptability. Reviewing financial plans and diversifying portfolios could help to navigate this uncertain environment.

We believe in regularly reviewing your plan and investment strategies with a financial adviser. Seeking professional advice can help you explore investment options that align with your financial goals as well as your willingness and ability to accept risk. At Schroders Personal Wealth our experienced advisers can provide personalised recommendations and insights, helping you make informed decisions that support your long-term financial wellbeing.