Price controls and inflation-linked adjustments overseen by the government are poised to maintain elevated inflation levels throughout 2025, creating additional challenges for the Bank of England’s interest rate strategy.
Research from Pantheon Macroeconomics indicates that modifications to at least 17 government-controlled or inflation-indexed prices will drive services inflation to 5.2 per cent in April, dropping marginally to 4.7 per cent by year-end. These regulated price changes span essential services, including water and energy bills, alongside rail fares.
The consultancy’s December analysis reveals these collective price adjustments will contribute 0.7 percentage points to the Consumer Price Index (CPI), effectively preventing any significant decline in services inflation until April. Households face substantial increases, with water bills set to rise by 20 per cent next April, as announced by Ofwat, whilst Ofgem has confirmed a 1.2 per cent increase in average annual energy bills to £1,738 starting January.
The impact extends beyond utilities, with private schools expected to transfer 60 per cent of VAT-related costs to fees. Rail passengers will encounter a 4.6 per cent fare increase in March, accompanied by a £5 rise in railcard prices. Additional pressure points include adjustments to broadband, telephone bills, alcohol duties, and the TV licence fee.
The Bank of England, which maintained interest rates at 4.75 per cent in its latest decision, closely monitors services inflation as a key indicator for monetary policy decisions. The implementation of increased employers’ National Insurance Contributions (NICs) adds further complexity, with Bank of England research suggesting half of businesses plan to raise prices to counterbalance higher tax obligations.
The Office for Budget Responsibility has cautioned that expanded public spending, outlined in the October 30 budget, whilst potentially boosting short-term economic growth, risks amplifying inflationary pressures and interest rates throughout the coming year.
Post Disclaimer
The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.
This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.
The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.