Traders are scaling back bets on interest rate cuts from the Bank of England (BoE) this year after a stronger-than-expected inflation reading cast doubt over the central bank’s ability to ease borrowing costs further.

Markets are now pricing in just one additional quarter-point cut in 2025, reflecting growing concern that the pace of price rises may prove more persistent than previously thought.

According to money markets, the probability of a rate reduction in August has slipped to 50%, down from 60% prior to the latest inflation figures.

Read more: UK inflation rises to 3.5% in April as household bills surged

The pound climbed to its highest level since February 2022 following the data.

Sanjay Raja, chief UK economist at Deutsche Bank, said: “This will almost certainly be the death knell for a June rate cut, however. While August still seems likely in our view, it certainly has become a lot more interesting and balanced.”

The repricing comes amid increasingly hawkish rhetoric from senior BoE officials. On Tuesday, Huw Pill, the Bank’s chief economist, warned that markets might have moved too quickly in pricing in rate reductions. Pill, a member of the Monetary Policy Committee (MPC), had opposed the BoE's decision earlier this month to cut rates from 4.5% to 4.25%.

Luke Bartholomew, deputy chief economist at Aberdeen, said the overall outlook remained cautious: “We think a quarterly profile of rate cuts remains appropriate, but the chance of the easing cycle speeding up any time soon has fallen.”

April’s consumer price index reading showed inflation rising to 3.5% — the highest level since early 2024 — matching what the BoE had forecast for the July–September 2025 period.

“This is telling us how bad today’s inflation reading is,” said Costas Milos, professor of finance at the University of Liverpool. “The problem is that the big increase in inflation will create a momentum in inflation which will be fuelled further by Trump’s tariff wars. In my view, this very momentum in inflation might push inflation to as high as 4%, that is, way above the Bank of England’s forecast.”

He added: “The majority of MPC members will most likely vote to keep interest rates at 4.25% in June. That said, I would not be surprised if a vote is cast in favour of a slight increase in interest rates to 4.5%."

JPMorgan economist Allan Monks shared the same concerns, adding that wage growth remains elevated. “Combined with the BoE’s recent hawkish rhetoric — including Huw Pill’s comments yesterday, but more specifically the three or four hawks in the centre-ground identified in the March minutes — this CPI release likely closes the door to a June cut and increases the risk that the BoE will pause in August,” he said.