UK inflation accelerated in March in the first sign that the impact of the Iran war would hit the cost of living.
A surge in energy costs caused by the conflict has started to hit consumers in the pocket.
The consumer prices index rose by 3.3 per cent from a year earlier, up from 3 per cent the previous month, the Office for National Statistics said on Wednesday. That figure was in line with the expectations of economists.
The increase was driven by an 8.7 per cent jump in the price of motor fuel, the largest monthly gain since 2022 when Russia invaded Ukraine. The price of petrol at the pump was up 20 pence ($0.27) per litre across the month and diesel was up 40 pence. Both fuels have risen further since. Airfares have also increased sharply.
UK Chancellor Rachel Reeves said she would work to keep energy costs down through policy measures. “This is not our war, but it is pushing up bills for families and businesses," she said. "That’s why it’s my number one priority to keep costs down."
Wider pressures could be seen in the index. Services inflation, a key indicator of underlying price pressures, unexpectedly rose to 4.5 per cent from 4.3 per cent. Food prices were up by 3.7 per cent, with further increases to come later in the year.
The report shows how the Middle East crisis has upended the outlook for inflation. Brent crude is close to $100 a barrel, with the US and Iran having not yet reached an agreement to end a war that has brought Gulf oil and gas exports to a near standstill.
The squeeze is also threatening to affect everyday goods and services, with domestic gas and electricity prices set to rise in July and warnings that food inflation could reach close to double digits.
Interest rates
Inflation had been on track to fall to the 2 per cent target in the second quarter, clearing the way for further interest rate cuts by the Bank of England. But now it is expected to stay at about 3 per cent and accelerate in the third quarter, raising the possibility of rate increases instead.
“The first signs of inflationary pressure stemming from the conflict in the Middle East began to emerge last month, driven largely by rising fuel prices," said Harvir Dhillon, economist at the British Retail Consortium. "In the grocery sector, mounting cost pressures saw food inflation creep up.
"Ahead, if food prices follow a similar trend as seen following the Ukraine-Russia conflict, prices will start to ramp up more notably throughout 2026."
