This was the warmest April in the UK since records began in the 1910s. And it seems like the heat was being felt everywhere as the latest inflation numbers came in, rising to 3.5% in the 12 months to April 2025, ahead of the Bank of England’s target of 2%¹. Although the market was prepared for an increase, the numbers came in ahead of expectations of around 3.3%. The main driver behind the rise was a sharp jump in household bills, including energy, water and council tax. Transport and recreation and culture were the second largest divisions contributing to the change². Although we are far from the peaks felt in recent years, these inflationary pressures seem unlikely to abate in the short term. The Bank of England previously forecast inflation to peak during the Summer at around 3.7% before reverting back to its target of 2% by September³. With the pressure remaining on for UK household budgets, we explore what this means for you and your financial plan.

Inflation Explained

What is inflation?

Inflation is a measure of how much the price of goods (such as groceries or clothes) and services (such as cinema tickets or transportation) have gone up over a set period. When inflation rises, the purchasing power of your money decreases – you can buy less with the same amount of money. For example, if inflation stays at 3.5% for a year, something that costs £100 today would cost £103.50 in a year’s time. If it remained at 3.5% for 10 years, £100 in your pocket would be worth only £70.

In the UK, inflation is measured by the Office of National Statistics’ (ONS) Consumer Prices Index (CPI). They collect a wide range of prices (around 180,000 price quotations) for a “shopping basket” of 752 items, designed to be representative of UK consumer spending patterns. This shopping basket is assessed and changed over time: in 2025 virtual reality headsets and pre-cooked pulled pork were added⁴!

How is Inflation Controlled?

The Bank of England has a positive inflation target of 2%. Whilst it might seem strange to target positive inflation, it helps support a health and stable economy through the promotion of ongoing economic activity and reduces the risks of deflation, which can slow economic growth and increase unemployment. A modest level of inflation is a sign of a healthy economy.

The Bank of England uses the interest rate or Bank Rate as a tool to control inflation. The theory is the higher the interest rate, individuals and businesses are more incentivised to save any surplus money rather than spend or borrow it as they will earn more money on savings and loans will cost more. If inflation is deemed to be too high, the bank is more likely to increase the interest rate to encourage people to save more and spend/borrow less. In turn as the amount of money circulating through the economy decreases, the theory is that this decline in demand for goods and services should bring price rises – inflation – back under control. 

Source: Consumer Prices Index from the Office for National Statistics April 2025, and Bank Rate from the Bank of England as at 21st May 2025

This is what happened in late 2022 to 2023 in the UK. You can see on the chart that inflation fell from its peak of 11.1% in November 2022 to 6.7% in September 2023. On the other line you can see that the Bank of England increased its interest rate (Bank Rate) over this same period, reaching 5.25% in August 2023. At this point the Bank of England stated “inflation is still too high. We are focused on bringing inflation back down to our 2% target and keeping it there. We will keep interest rates high enough for long enough to ensure that we achieve our goal”⁵. Harnessing the interest rate to curb inflation is a powerful monetary policy tool, but it is rarely a simple one. It can take time to get the balance right and moving the interest rate can

What is going on at the moment?

The UK saw inflation rising to 3.5% in April. This came amidst ongoing global economic tensions, including concerns around tariffs and continued supply chain pressures. Additionally, April was the first month with the increased minimum wage coming into effect, which impacted hospitality. The Bank of England had voted to cut the Bank Rate by 0.25 percentage points in April. Further rate cuts were expected this year, however the latest inflation figures call this into doubt.

What does this mean for you? David Murray, Head of Aberdeen Financial Planning has some thoughts.

David Murray, Head of Aberdeen Financial Planning, explains:

“An increase in inflation offers no respite for households still grappling with high prices as everyday essentials are continuing to get even more expensive.”

Review your savings

“To steady the increase, it’s more important than ever that savers make their money work as hard as possible. Choosing savings accounts with high interest rates, or maximising ISA and pension contributions can help ensure that all money tucked away is pulling its weight.”

It’s worth taking a moment to assess any larger sums of cash you may have sitting in savings accounts. While keeping an easily accessible “emergency” fund is a valuable part of financial planning—especially during uncertain times—cash savings can lose value over time due to inflation. Consider how much you truly need immediate access to, and explore whether surplus funds could be working harder for you elsewhere. Harnessing ISAs and pension contributions is a great option to explore.

Stay the course

“Especially with markets jittery in the wake of global economic tensions, including recent tariff announcements, sticking to a calm and well-diversified long-term plan has never been more important. Let the headlines come and go – your financial strategy should remain focused and resilient.”

While inflation can be unsettling, especially given the current economic climate, reacting to short-term market movements can do more harm than good. A diversified investment portfolio remains one of the best defences against inflation over time.

Need further support?

If you are worried or want to review your own position, taking expert advice and speaking with a financial planner can help to ensure that your investment strategy aligns with your overall financial goals. If you’re unsure how inflation might affect your financial plans or want to explore ways to minimise the impact of inflation, speaking to your financial planner is a great idea.