Labour has unleashed a new wave of inflation on households

 Fingers point to Reeves after tax raid piled pressure on both businesses and consumers

Daily Telegraph 

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Inflation has jumped to its highest rate in more than a year following a sharp increase in household bills.

Prices, as measured by the consumer prices index, rose by 3.5pc in the year to April, according to the Office for National Statistics (ONS).

Statisticians blamed one-off increases in gas, electricity and water bills for the steep rise.

However, businesses have warned that Rachel Reeves’s record tax raid will force them to raise prices further, piling more pressure on households and keeping interest rates higher for longer.

Inflation above 3pc will force Andrew Bailey, the Governor of the Bank of England, to write a letter to the Chancellor to explain the overshoot.

The Bank is worried that steeper price rises later this year could keep pushing up pay demands.

While it cut interest rates from 4.5pc to 4.25pc this month, the Monetary Policy Committee (MPC) that sets rates remains deeply divided over where borrowing costs should head next.

The increase in services inflation from 4.7pc to 5.4pc will be of particular concern. The price of everything, from going out for a meal, staying in a hotel or going to a concert, is closely monitored by the Bank given how it can impact wage growth. And it is going in the wrong direction – with the latest figures showing that regular wage growth remains at 5.6pc.

This will deliver a blow to the 1.5m households expected to refinance their mortgage deals this year. Borrowers face an average increase of £100 a month if they take out a fixed-rate mortgage.

The vote to cut rates this month was finely balanced, with five of the nine policymakers voting for a cut. Even Governor Bailey admitted that he was also on the fence, describing himself as “very undecided”.

Huw Pill, the Bank’s chief economist, said in a speech on Tuesday that the pace of rate cuts is already “too rapid”.

“In my view, that withdrawal of policy restriction has been running a little too fast of late, given the progress achieved thus far with returning inflation to target on a lasting basis,” he said.

He said he was “very concerned” that the experience of lockdown and Russia’s invasion of Ukraine had permanently changed workers’ mindsets.

In short, the British workforce is no longer willing to settle for below-inflation pay rises.

Suren Thiru, at the Institute of Chartered Accountants in England and Wales, described April’s inflation shock as “awful”.

He said: “This inflation surge highlights the brutal hit to household and business finances from April’s multitude of eye-watering bill rises and tax hikes, with higher energy costs in particular driving an uncomfortably large increase in the headline rate.

“These figures probably rule out a June rate cut and while policymakers should view April’s spike as a temporary blip, the size of the increase means an August policy loosening is far from a done deal.”