UK inflation rises as Iran war impact begins to hit
Consumer price inflation in the UK rose to an annual 3.3 percent in March from 3.0 percent in February, according to official figures showing the first impact of the war in the Middle East on prices.
Figures published by the Office for National Statistics on Wednesday showed that factory entry prices also rose sharply and much more than expected.
Economists polled by Reuters had mostly expected the headline rate of consumer price inflation to rise to 3.3 percent in March, driven by increases in oil and other fuel costs.
The price of motor fuels increased by 8.7 percent in the month; this was the largest increase since June 2022, shortly after Russia’s full-scale invasion of Ukraine.
Data from the Office for National Statistics showed services price inflation, which the BoE closely monitors as an indicator of long-term inflation pressures, rose to 4.5 percent from 4.3 percent in February.
Economists surveyed by Reuters had expected this rate to remain at 4.3 percent.
Core inflation, which excludes more volatile food, energy, alcohol and tobacco prices, fell to 3.1 percent from 3.2 percent in February. The poll had indicated another reading of 3.2 percent.
Before the US-Israeli war against Iran began on February 28, the Bank of England said Britain’s inflation rate – the highest in four years among the Group of Seven economies – was likely to be close to its two per cent target in April.
However, the BoE sharply raised its inflation forecast in March due to the energy price shock, predicting that inflation would rise to 3.5 percent by mid-2026.
The International Monetary Fund last week predicted that inflation in the UK would rise to 4 percent in the coming months.
However, the BoE’s interest rate setters have mostly said it is too early to know what a rise in headline inflation will mean for underlying price pressures in the economy, given the weak labor market that could make it harder for workers to demand higher wages or for businesses to absorb higher costs.
The British central bank is expected to put borrowing costs on hold at the end of its next Monetary Policy Committee meeting on April 30.
Financial markets were betting on Tuesday that the BoE would raise interest rates by one or two quarter points in 2026.
But a Reuters poll of economists showed most expect no change in borrowing costs in 2026.
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