Inflation is set to jump as a range of index-linked bills and taxes take effect when official cost-of-living data is released next week.
Deutsche Bank forecasts headline inflation will lift to 3.4% in April from 2.6% as energy and water bill rises kick in when the Office for National Statistics posts its print on Wednesday.
This data will also include changes to vehicle excise duty, council tax bills, and air passenger duty, as well as the “double whammy” of rises to the National Living Wage and employer National Insurance Contributions, says the German bank.
Deutsche Bank senior economist Sanjay Raja adds: “April inflation will present the biggest test for the Monetary Policy Committee so far this year”.
Goldman Sachs analyst Sven Jari Stehn points out: “UK core inflation continues to run notably ahead of that in other countries, reflecting high services inflation and firm wage growth.”
The latest inflation data comes after official figures showed earlier this week that the UK economy grew by a larger-than-expected 0.7% in the first three months of the year.
However, this data came before the 2 April move by US President Donald Trump to hike tariffs on more than 75 countries, which is expected to impact UK growth.
Last week, the UK struck a deal with the US to reduce or remove tariffs on some UK exports, but the baseline 10% levy, which applies to many countries, will still be charged on most British goods entering the US.
The Bank of England cut the base rate by a quarter point to 4.25% last week, the second 0.25% reduction of the year and the lowest level since May 2023.
It also lifted its forecast for the UK economy to grow by 1% this year, marking an upgrade from the 0.75% growth predicted in its February report.
However, rate-setters expect that energy prices “are still likely” to drive up inflation to 3.5% in the third quarter of the year, before “falling back thereafter”.
Money markets expect between two and three further cuts this year to boost a subdued economy that faces tariff uncertainties.
But many economists forecast that the Monetary Policy Committee may pause rate reductions at its next 19 June meeting to gauge how hot prices are running across the economy.
