Emeritus Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

Year-on-year UK inflation fell to 2.8% in April, but this gives a false impression of the nation’s economic health. Yes, inflation remains far lower than the heights of 2021-23 and will not reach that level because demand in the economy remains low, meaning there is simply not enough economic activity to drive prices higher.

But month-on-month inflation was recorded at 0.7% for the second month in a row, delivering another setback for hard-pressed households, businesses, and policy decision-makers. The year-on-year figure of 2.8% has only cooled as it is calculated in comparison to April 2025, a month when inflation rose sharply.

The main driver of inflation is external to the UK. The ongoing crisis in the Middle East is fuelling renewed volatility across global energy markets, pushing up oil and gas prices and increasing costs throughout the economy. Transport firms, manufacturers, and retailers are all facing rising operating costs, and many are now passing those increases directly on to consumers.

This situation is cause for concern, given that just a few months ago inflation was expected to continue easing gradually this year. Even if tensions in the Middle East were to ease quickly, inflation is unlikely to fall sharply. Once higher energy, shipping, and production costs become embedded in supply chains, they do not disappear overnight.

Persistently high inflation is already affecting financial markets. Combined with current political instability, this is prompting higher government borrowing costs, with 10-year bond yields now at a multi-decade high of around 5%. This has increased pressure on government finances, with debt interest payments now well in excess of £100bn this year.

Mortgage rates are also likely to remain elevated. Expectations that the Bank of England would begin cutting interest rates this year have now all but disappeared. If inflation continues to rise, the pressure may turn towards rate increases rather than rate cuts.

Policymakers are aware that higher financing costs are not conducive to a growing economy, but their focus remains on taming inflation — and they will act if deemed necessary. For homeowners and businesses refinancing debt, this raises the prospect that borrowing costs will remain painfully high well into next year.

Britain faces the risk of stagflation – weak growth with stubborn inflation – limiting their options. For many, the strain on living standards will continue as inflation proves difficult to contain, at risk of overtaking the growth in wages.