‘Awful April’ price hikes will cause ‘inflation surge’
Sweeping price hikes coming into effect from Tuesday are set to push up inflation, a leading economics consultancy has said, as what many have called ‘Awful April’ is set to put an extra burden on businesses’ costs.
Higher costs in everything from water to energy will contribute to a rise in inflation that peaks at twice as high as the Bank of England’s target rate of 2 per cent, according to analysts at Oxford Economics.
Households and companies operating on variable tariffs will see their energy bills rise by £111 while water bills are increasing by 26 per cent.
A surge in European wholesale gas prices in previous months could also have an effect on inflation in the spring, Oxford Economics said.
“Large regulated price increases, higher oil prices, weaker sterling, and the impact of policy measures from October’s Budget will combine to cause an inflationary surge this year,” economist Edward Allenby said.
Other price increases coming into effect from Tuesday include changes to council tax, stamp prices, TV licences, broadband prices and car taxes.
The national minimum wage will also rise to £12.21 from Tuesday, taking a toll on costs for thousands of businesses.
Later this week, the beginning of the tax year will also see the onset of Chancellor Rachel Reeves’ £18bn national insurance raid on employers’ contributions.
Oxford Economics predicted that the tax rise will lead to firms passing labour costs onto consumers.
“The upward pressures on inflation largely come from external sources and appear transitory. We think they are unlikely to result in significant indirect or second-round effects,” Allenby added.
Oxford Economics said it expects consumer price inflation (CPI) to average at 3.2 per cent in 2025.
It matches the Office for Budget Responsibility (OBR)’s latest estimate. The Bank said that inflation could peak at 3.75 per cent shortly after the summer.
Economists at Pantheon Macroeconomics see inflation rising to 3.5 per cent in April before a rise to 3.7 per cent in the autumn.
In a separate report, the think tank Institute for Fiscal Studies (IFS) said that this week’s “dramatic increase” in employers’ national insurance contributions and the minimum wage would make it harder for young adults to enter the workforce.
“We know that spells of unemployment early on in people’s careers can have long-lasting effects on their career trajectories,” Sam Ray-Chaudhuri, a researcher at the IFS, said.
“Given existing worries about how young people have fared over recent years, it will be important to proceed cautiously and closely monitor the effects of these policies on this group, to avoid young people being left behind.”