What is happening to UK prices?

ShareSaveAdd as preferred on GoogleGetty ImagesPrices in the UK rose by 2.8% in the year to April, down from the 3.3% recorded in March, but still above the Bank of England's 2% target. However, UK inflation is expected to increase in the next few months due to the ongoing impact of the US-Israel war with Iran, which has put up energy and fuel costs around the world. The Bank moves interest rates up and down to try to keep inflation on track. Six cuts since August 2024 had brought rates down to 3.75%, but the war is expected to delay any further falls, and the next move could be up. Inflation is the increase in the price of something over time. For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%. The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS). This virtual "basket of goods" is regularly updated to reflect shopping trends, with alcohol-free beer, dashboard cameras, and pet grooming equipment among items added in 2026, while premium bottled lager, some categories of wine and sheets of wrapping paper were removed. The ONS uses price changes in the basket of goods over the previous 12 months to calculate inflation. The main inflation measure is called the Consumer Prices Index (CPI), and the latest figure is published every month. Although the April CPI figure of 2.8% remains above the Bank of England's target, it is well below the 11.1% figure reached in October 2022. The fall in April – which meant prices were still going up but more slowly than previously – was bigger than expected. It was largely due to the reduction in the government's energy price cap for the three months between April to June. That cut annual bills by £117 for a household using a typical amount of energy. However the next cap - which takes effect on 1 July - is expected to be higher, reflecting increased wholesale energy costs. Precisely because food or energy prices can be very volatile, the Bank of England also considers other measures, such as "core inflation", when deciding whether and how to change rates. Core CPI was 2.5% in the 12 months to April, down from 3.1% in March. UK inflation had been expected to be at or around the target level of 2% over the next five years, according to the official forecasts published alongside Chancellor Rachel Reeves' Spring Statement on 3 March. But those predictions were made before the Iran war. In April, the Bank of England warned that UK inflation could go as high as 6% in the worst-case scenario. Although inflation has fallen significantly since the October 2022 high, prices have not fallen. They have just been rising less quickly. Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and energy prices surged again when Russia invaded Ukraine. It then remained well above the 2% target, partly because of higher food prices. The April 2026 figures show food price inflation fell to 3% from 3.7% in the year to March 2026. However, it can take seven to 13 months for cost increases in the food supply chain to feed through to prices on supermarket shelves. The Food and Drink Federation, which represents manufacturers, warns food inflation could be as high as 10% by the end of 2026. Employees who face higher living costs are more likely to push for pay rises. Firms who are already facing higher staff costs as a result of increased employer National Insurance contributions and minimum wage hikes are then under pressure to put up their own prices. This can in turn contribute to higher inflation. When inflation was well above its 2% target, the Bank of England increased interest rates to 5.25%, a 16-year high. The idea is to make borrowing more expensive, giving people and businesses less money to spend. This can encourage people to save more. In turn, this reduces demand for goods and slows price rises. But it is a balancing act – increasing borrowing costs risks harming the economy. For example, homeowners face higher mortgage repayments, which can outweigh better savings deals. Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment. In recent months, inflation has remained above the Bank's target at the same time as the economy has remained relatively flat and the jobs market has softened. Therefore, the Bank has chosen to cut rates, despite high inflation, in an attempt to encourage people to spend more and get businesses to invest and create jobs to boost the economy. The Bank of England began cutting rates in August 2024. Six cuts since then brought rates down to 3.75%, the lowest level since early 2023. The most recent cut in December 2025 reflected concerns over rising unemployment and weak economic growth. However, it was tight vote, with policymakers voting 5-4 in favour of a cut. The vote was equally close in February, when policymakers dec

What is happening to UK prices?

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