UK Inflation Rises to 3.3% Amid Iran War Impact

UK consumer price inflation rose to an annual rate of 3.3% in March, up from 3.0% in February, according to official figures published by the Office for National Statistics (ONS). This increase marks the first significant impact on prices from the ongoing war in the Middle East.

The rise was driven primarily by a sharp increase in motor fuel prices, which jumped by 8.7% during March—marking the largest monthly increase since June 2022. Economists polled by Reuters had mostly expected this acceleration due to rising petrol and other fuel costs.

The data also showed that services price inflation, closely watched by the Bank of England (BoE) as a gauge of longer-term inflation pressures, rose to 4.5% from 4.3%. Core inflation, which excludes volatile food, energy, alcohol, and tobacco prices, weakened slightly to 3.1% from 3.2%, according to Reuters.

The BoE had previously forecasted that the UK's inflation rate would be close to its 2% target by April before the war began on February 28. However, due to the energy price shock caused by the conflict, the BoE revised its prediction, anticipating inflation could rise towards 3.5% by mid-2026.

The British central bank is expected to keep borrowing costs steady at the end of its next scheduled Monetary Policy Committee meeting on April 30. Financial markets are betting on one or possibly two quarter-point interest rate rises this year, although a Reuters poll of economists showed most expect no change in borrowing costs during 2026.