What is happening to UK prices?

Prices 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.

That was the highest rate for 40 years.

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 decided to keep rates at 3.75%.

After the February announcement, Bank governor Andrew Bailey had said he expected inflation to be close to the Bank's 2% target from spring 2026 onwards, providing "scope" for further rate cuts.

However, the conflict in Iran has changed those expectations.

At its March meeting the Bank's monetary policy committee voted unanimously to keep rates at 3.75%, in anticipation of higher inflation.

At its April meeting, the Bank again held rates at 3.75%, but warned that future hikes were likely if the price of oil remained high, pushing UK inflation up.

It said there could be "forceful" rises later this year – up to six in a worst-case scenario, potentially bringing the rate to 5.5%.

The next interest rate decision is on Thursday 18 June.

The Bank also looks closely at what is happening to wages and unemployment.

The latest official figures show that regular pay in the UK grew by very slightly more than inflation between January and March 2026.

Average annual growth in pay (excluding bonuses) during the three-month period fell to 3.4%, down from 3.6% recorded between between December 2025 and February.

After taking inflation into account, it means wages grew by 0.1% for regular pay between January and March.

Annual average earnings growth for the quarter was 4.8% for the public sector and 3% for the private sector.

Meanwhile, separate ONS figures showed the estimated number of job vacancies in the UK fell by 28,000 to 705,000 between February and April.

The unemployment rate unexpectedly rose to 5% in the three months to March, up from 4.9% in the three months to February.

Analysts said the figures show the first effects of the Iran war on the jobs market, and warned demand for workers would likely continue to weaken the longer the conflict goes on.

Early estimates suggest the number of payrolled employees recorded in April dropped by about 210,000 from the previous month, to 30.2 million.

The US and eurozone countries have also been trying to limit price increases,but both have lower central bank interest rates than the UK.

The inflation rate for countries using the euro was 3.0% in April, according to EU data — up from 2.6% in March.

Between June 2024 and June 2025, the European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 2%, where it has remained.

In the US, prices rose by 3.8% in the 12 months to April, up from 3.3% in March, and the the largest inflation rate recorded since May 2023.

In March and again in April, the US Federal Reserve held its target interest rate at a range of 3.50% to 3.75% — the lowest level in three years.

But the Fed has consistently come under attack from US President Donald Trump for not cutting rates.

Kevin Warsh - who will lead the bank when current chairman Jerome Powell's four-year term ends later in May - is expected to be more in favour of cuts.