UK CPI Preview: April Inflation Set to Cool, but Oil Rally Clouds Outlook

London, UK – The Office for National Statistics is expected to report a further easing in UK consumer price inflation for April when it releases the latest CPI data on Wednesday. However, the recent rally in global oil prices is already raising concerns that the relief may be short-lived, complicating the Bank of England’s path toward rate cuts.

April CPI: What the Data Is Expected to Show

Economists surveyed by Reuters forecast the annual headline CPI rate to fall to 2.1% in April, down from 2.6% in March. If confirmed, this would bring inflation within a whisker of the Bank of England’s 2% target for the first time since mid-2021. The anticipated decline is largely attributed to base effects from last year’s sharp energy price increases dropping out of the annual calculation, as well as a moderation in food price inflation.

Core CPI, which excludes volatile food and energy items, is also expected to edge lower, though it is likely to remain stickier, hovering around 3.5%. Services inflation, a key metric watched closely by the Monetary Policy Committee, is projected to ease only modestly, reflecting persistent wage pressures in the labour market.

The Oil Rally Complicates the Picture

While the April print may offer some relief, the outlook for the coming months has darkened considerably. Brent crude has surged past $90 per barrel in recent weeks, driven by supply disruptions in the Middle East, OPEC+ production cuts, and stronger-than-expected global demand. The rally has already pushed UK petrol prices to their highest level since November, and analysts warn that further increases will feed through to utility bills and transportation costs later in the summer.

“The April CPI data will likely show a welcome dip, but it’s the May and June figures that will really matter for the BoE,” said Sarah Thornton, chief UK economist at Oxford Economics. “If oil stays above $90, we could see headline inflation rebound above 3% by the third quarter. That would effectively slam the door on any rate cuts this year.”

Market Implications for the Bank of England

The Bank of England held its benchmark rate at 5.25% in May, with Governor Andrew Bailey reiterating that the MPC needs to see sustained evidence that inflation is under control before loosening policy. Markets had been pricing in the first rate cut for August, but the oil rally has pushed those expectations back to November or even later.

Sterling has weakened slightly against the dollar on the shifting rate outlook, while gilt yields have edged higher as traders adjust their expectations. The FTSE 100, heavily weighted toward energy and commodity stocks, has benefited from the oil price surge, but domestically focused sectors remain under pressure from the higher-for-longer rate environment.

What This Means for Households and Businesses

For UK households, the respite from falling inflation may prove temporary. Energy regulator Ofgem’s price cap is set to be updated in July, and any increase in wholesale gas and electricity costs will directly affect household bills. Meanwhile, businesses are grappling with higher input costs, particularly in transport and manufacturing, which could delay the pass-through of lower inflation to consumers.

The labour market adds another layer of complexity. Wage growth remains elevated at around 6%, well above the level the BoE considers consistent with the 2% inflation target. If the oil rally reignites price pressures, the MPC may feel compelled to keep rates restrictive for longer, even as the economy shows signs of slowing.

Conclusion

The April CPI release is likely to show a welcome dip in UK inflation, offering a brief moment of optimism. However, the rally in global oil prices poses a significant upside risk to the inflation outlook for the remainder of 2025. The Bank of England faces a delicate balancing act: cutting rates too soon could reignite price pressures, while keeping them too high risks further economic weakness. For now, the data-dependent approach remains the only prudent path forward.

FAQs

Q1: When will the UK April CPI data be released?
The Office for National Statistics is scheduled to publish the April consumer price index on Wednesday, 21 May 2025, at 07:00 BST.

Q2: How does the oil rally affect UK inflation?
Higher oil prices increase the cost of petrol, diesel, and heating oil, and feed through to transportation and production costs across the economy. This can push headline inflation higher, especially if sustained over several months.

Q3: Could the Bank of England still cut rates in 2025?
Possibly, but the timing is highly uncertain. If inflation falls sustainably toward 2% and the economy weakens further, the BoE may cut rates in late 2025. However, the oil rally and persistent services inflation make a summer cut unlikely.