Author: Richard Partington Senior economics correspondent

For households across Britain, April was an awful month. Rising energy bills, broadband costs and the sharpest increase in water bills since privatisation – despite public anger over the quality of service offered – all added to the cost of living squeeze.Economists had forecast a jump in inflation based on the flurry of annual bill increases. But at 3.5% – the highest rate in the G7 – the rise was bigger than the 3.3% rate predicted in the City, and will raise concerns at the Bank of England.Most of the increase was down to energy costs, after a well-telegraphed 6.4% increase in the Ofgem consumer price cap. However, there was a much bigger leap in water and sewerage bills, where prices rose by a whopping 26.1%, the biggest annual increase since February 1988.Although inflation had been cooling for several months, it was clear a jump in the headline rate would come as a consequence of the changes in utility bills, as well as a number of other price increases timed to land in April each year.Inflation has been close to the 2% target since the middle of last year, having fallen back from a peak of more than 11% in late 2022 after the Russian invasion of Ukraine sent energy prices soaring. Now it is on the rise again, and Threadneedle Street forecasts it will peak at an average of 3.5% over the summer months and does not expect it to return to its 2% target until early 2027.Usually, inflation sticking above the Bank’s target for so long would entirely rule out interest rate cuts. However, at 4.25%, official borrowing costs are squeezing businesses and households at a time when there are concerns about economic growth given heightened uncertainty as Donald Trump’s trade wars rattle the global economy.In this world, policymakers are attempting to strike a balance between bearing down on inflation, while supporting activity in the economy. Given the higher-than-expected inflationary burst in April, there are concerns that the Bank will not be able to reduce borrowing costs by as much as hoped, even as economic uncertainty remains elevated.There are, however, some signs that the rise in inflation should prove temporary. Business leaders have been warning about the impact of the government’s £25bn increase in employer national insurance contributions (NICs) – introduced last month – being passed on to consumers in the form of higher prices.Economists say there was some evidence in the April data, after services inflation – which is more sensitive to labour costs – sharply strengthened on the month, from 4.7% to 5.4%. To many business groups this was a clear sign of costs being passed on.However, the picture is not entirely clear. Much of the overshoot was caused by the timing of Easter. The Office for National Statistics highlighted that it gathered its data for consumer prices during this year’s Easter holidays, when travel and tourism companies sharply increase prices. Because it gathered last year’s data outside the long bank holiday weekend, the inflation rate – which measures the change in price from a year earlier – is unflatteringly high.skip past newsletter promotionafter newsletter promotionAir fares increased by 27.5% compared with those in March, the second biggest month-on-month increase on record, while prices for recreation and culture, particularly foreign holidays, also rose sharply.In contrast, the rate of inflation for restaurants and hotels, a sector particularly exposed to higher labour costs, cooled on the month. Still, other economists point to food inflation, which is also likely to be influenced by the NICs increase, where price growth increased from 2.9% to 3.2%.Where the tax increase is having a more noticeable impact, however, is in terms of hiring, after figures published earlier this month showed unemployment hitting the highest level in almost four years. That ought to concern Threadneedle Street’s policymakers for the months ahead.

Ministers have been told cutting waiting times for thousands of people in Britain’s mental health crisis could help employment and save the government £1bn a year.According to research by Lancaster University, providing access to faster treatment across England through the NHS would help to improve the health of hundreds of thousands of people while bringing economic benefits for the nation at large.In a new study to be published in the latest edition of the respected Review of Economics and Statistics academic journal, Prof Roger Prudon found that a one-month delay in the start of mental health treatment resulted in 2% of patients losing their jobs.Drawing on data for waiting times from the Netherlands between 2012 and 2019, Prudon said a one-month reduction could help as many as 80,000 people get access to treatment annually, which would save more than €300m (£253m) in unemployment-related costs every year.He said the same calculation could be applied to the UK, given a comparable prevalence in mental health problems, as well as similar treatment times and cost to the economy and public finances from unemployment.Britain’s larger population would mean a one-month reduction in waiting times for mental health treatment could help as many as 300,000 people each year, and would save about £1bn each year in lost income taxes and payouts for unemployment benefits.“Data on NHS mental health treatments linked to employment outcomes is scarce in the UK, so while the Netherlands’ setup is different, the healthcare system is similar to that of the UK – and both countries are facing increasing demands for mental health treatments and a backlog of extended waiting lists,” he said.“Applying this calculation to the UK – based solely on population size – it could generate approximate savings of £1bn per year.”Ministers are pushing to dramatically reduce lengthy waiting times for patients in England with a plan to cut backlogs for elective hospital treatment and by providing more appointments through seven-day health hubs.However, charities warn the plan does not currently include any commitment to tackling waits for mental health services. According to research by the charity Rethink Mental Illness, people are eight times more likely to wait more than 18 months for mental health treatment than for physical conditions.The government is also prioritising NHS reforms and cutting waiting lists to boost employment, aiming to boost economic growth and cut the benefits bill, amid record numbers of working-age adults leaving the workforce due to health issues.Official figures show there were about 3.8 million people in England in contact with NHS mental health, learning disability and autism services in 2023-24, up almost two-fifths compared with before the pandemic.Prudon said that in the Netherlands about 1 million people are in contact with the health service with a mental health issue. To reduce waiting times by one month, he said about 100 additional psychiatrists or psychologists would be required at an approximate annual cost of €10m (£8.4m).skip past newsletter promotionafter newsletter promotionDue to the larger population, in the UK four times as many extra mental health professionals would be required. However, Prudon said the savings for Rachel Reeves’s stretched budget and the economy would considerably outweigh the costs.He added: “The issue of waiting times is not new, both in the UK and the Netherlands. This has been an issue for at least a decade. But what’s lacking in the debate so far, is that people are saying: ‘OK, it’s the treatment that’s important. But the government has limited funds, we can’t keep on spending money.’ However, there is also an economic case to be made.“It is not a case that we’re just losing money if we invest more in mental health. In the long run this would save the country quite a lot of money by retaining more people in the workforce.”A government spokesperson said: “This government inherited a broken mental health system, with too many people on waiting lists being held back from employment. Our shift towards prevention, together with our welfare reforms, will help more people return to work and boost economic growth.“We are transforming mental health services through our Plan for Change, by investing an extra £680m this year, hiring more staff, delivering more talking therapies and cutting mental health waiting lists.”