Economists polled by Reuters had expected the inflation rate to drop back to 3%, cooling from 3.3% in March, largely due to an energy price cap introduced by the U.K.’s energy regulator on April 1.
Consumer prices are expected to continue to rise, however, as higher energy costs as the economic implications of the Iran war materialize.
The government has come under pressure for not doing more to mitigate higher energy costs in the U.K., a net energy importer, and for not fully exploiting remaining oil and gas reserves in the North Sea.
Chancellor Rachel Reeves is expected to announce sweeping reforms to give parliament authority to approve critical energy schemes, the U.K.’s Treasury said early Wednesday, Reuters reported.
The Bank of England is keeping a close eye on price rises, as well as so-called “second round” effects, such as workers demanding higher wages and businesses raising costs for consumers, and has said it is ready to use monetary policy — such as raising interest rates — to combat inflation, if necessary.
The central bank is wary of the dampening effect that increasing interest rates could have on an already-fragile economy, however, amid lackluster growth and signs of weakness in the labor market; U.K. employment data on Tuesday showed the unemployment rate had risen to 5% in the three months to March, up from 4.9% in February.
As the BOE seeks to balance competing needs and risks facing the U.K., economists expect the central bank’s nine-member Monetary Policy Committee (MPC) could decide to hold rates at the next policy meeting on June 18 as it opts against acting too soon, either way.
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