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Households have been warned of at least months of pain as the Bank of England forecast higher-than-expected inflation this summer due to rising bills.
The Bank’s warning that inflation will hit a peak of 3.7% later in the summer follows a multitude of predicted hikes to household expenses, from food to energy and water, council tax and even bus fares.
Inflation is set to only fall back to the Bank’s 2% target in the final quarter of 2027, it said, about six months later than previously thought.
It follows analysts Cornwall Insight revising up its previous forecast of a further 1% increase to the energy price cap in April, now suggesting households will face an almost 3% hike to the current average yearly bill of £1,738 that came into effect on January 1.
However Craig Lowrey, principal consultant at Cornwall Insight, said the turbulence in wholesale markets – “a level of volatility we haven’t seen for months” – suggested caution should be exercised around predictions, “which could very well increase or decrease several times before the April cap is set”.
April 1 will also see households in England and Wales facing an average £123 or 26% increase to their yearly water bill, taking the average water and wastewater bill from £480 to £603 for the next year alone.
This equates to an increase of around £10 a month, from £40 to £50.
However millions of households face even steeper rises, with Southern Water customers told they will see a 47% increase, Hafren Dyfrdwy and South West Water bills rising by 32%, Thames Water customers warned they will see a 31% hike, and Yorkshire Water raising bills by 29%.
Bournemouth Water customers will see a 32% increase to their bills.
Just this week, millions of households learned they are facing a council tax hike beyond normal thresholds this year, as Deputy Prime Minister Angela Rayner warned of further “tough decisions” to “rebuild and stabilise” local government.
Six councils, serving more than two million people in total, have been granted permission to increase council tax beyond the established annual threshold of 5%.
Bradford Council will be able to increase the levy by a further 5%, while Windsor and Maidenhead Council and Newham Council can increase bills by an additional 4%.
The remaining councils – Birmingham, Somerset and Trafford – have been granted a further 2.5% uplift beyond the threshold.
To add to household woes, food prices are predicted to rise by an average of 4.2% in the latter half of the year as retailers battle £7 billion of increased costs from the Budget.
The British Retail Consortium has said modelling by the trade association and industry chiefs indicate there is “little hope of prices going anywhere but up” as retailers face higher national insurance, national living wage and new packaging costs.
On Thursday, Public Accounts Committee chairman Sir Geoffrey Clifton-Brown raised the pressures facing households during a Commons select committee hearing into energy debt, quoting from a document from consultancy service Clear saying the value of energy debt increased between 2023 and 2024 by a “staggering” 33%.
Laith Khalaf, head of investment analysis at AJ Bell, said: “The most striking announcement from the Bank of England today is not the cut in interest rates, but the prospect of inflation rising to 3.7% this year while its forecasts show the economy continuing to flirt with recession.
“Rising prices will not make for happy consumers who might have hoped that high inflation is in the rear-view mirror.
“CPI at 3.7% is nowhere near the double-digit inflation we saw at the height of the cost-of-living crisis, but it adds to the cumulative load of price rises.
“The primary culprit for rising inflation is higher energy prices, but the Chancellor’s Budget policies are also expected to push up prices. Namely the hike in national insurance, VAT on private schools and the rise in the cap on bus fares.
“The Bank hasn’t factored into its forecasts any effects from (US President Donald) Trump’s trade tariffs at the moment, seeing as they have only just started to emerge and are highly uncertain in their formulation and implementation. However, we know rising global trade tariffs do pose a further threat to UK economic growth and the inflationary environment.
“Overall, the Bank is painting a pretty bleak, stagflationary picture for 2025, which could get worse if Trump pushes through with widespread trade tariffs.
“It’s not the news anyone wants to hear, but then again, we’re getting used to it.”
