Individuals dispense gas on the pump at Costco Petrol Station in West Thurrock, Essex. The battle in Iran has triggered a surge in oil and gasoline costs. Image date: Thursday March 5, 2026.
Jordan Pettitt – Pa Photographs | Pa Photographs | Getty Photographs
The U.Okay. inflation fee stood agency at 3% in February, in keeping with the newest figures from the Workplace for Nationwide Statistics (ONS) which marked the final studying earlier than the beginning of the Iran warfare.
Economists polled by Reuters had anticipated the buyer value index to stay unchanged from the earlier month.
Core inflation, which excludes vitality, meals, alcohol, and tobacco, stood at 3.2% in February, up from 3.1% in January.
“After final month’s slowdown, annual inflation was unchanged. The most important upwards driver was the worth of clothes, which rose this month however fell a 12 months in the past,” Grant Fitzner, the chief economist at ONS, commented on X.
“This was offset by falls in petrol prices, with costs collected earlier than the beginning of the battle within the Center East and subsequent rise in crude oil costs,” he added.
The inflation print covers the ultimate month-to-month interval information earlier than the U.S. and Israel launched airstrikes on Iran in late February, prompting retaliatory strikes by the Iranian Republic. The British pound was down 0.17% in opposition to the greenback at $1.3385 following the information launch.
An ongoing and virtually complete block on the Strait of Hormuz, an important maritime passage for oil and gasoline out of the Center East, has despatched world vitality costs hovering. The U.Okay. is especially uncovered to rising vitality costs resulting from its reliance on oil and gasoline imports, and lack of gasoline storage amenities.
Whereas economists anticipate the inflation fee to fall again considerably in April resulting from a discount in family vitality payments linked to authorities cuts to “inexperienced levies,” shopper costs are broadly anticipated to rise considerably thereafter if the warfare continues.
“Brace for impression,” Deutsche Financial institution’s Chief UK Economist Sanjay Raja warned on Wednesday, stating that “inflation is poised for one more unwelcome detour” from right here on in, whereas ICAEW Chief Economist Suren Thiru famous {that a} “brutal inflation surge” is coming.
“February’s unchanged inflation is a false flag for the financial system as these figures pre-date the eyewatering vitality shock induced by the Center East battle and the next monetary ache going through customers and companies,” he stated in emailed feedback.
“Whereas inflation ought to fall subsequent month because the reduce to inexperienced levies briefly lowers vitality payments, a brutal inflation surge looms with skyrocketing oil and gasoline prices more likely to raise the headline fee above 4% by the summer season,” he added.
BOE dilemma
Whereas the warfare has rewritten inflation expectations within the U.Okay., the nation was already experiencing a stubbornly excessive inflation fee in comparison with its neighbors on the continent.
Nonetheless, the speed of value rises was anticipated to gradual this 12 months in direction of the Financial institution of England’s 2% goal, giving the central financial institution area to chop rates of interest.
The warfare has put paid to anticipated cuts for now, nevertheless, with economists saying the BOE is more likely to preserve rates of interest on maintain at 3.75%, or may even hike once more amid the revised inflationary outlook.
Zara Nokes, world market analyst at J.P. Morgan Asset Administration, stated U.Okay. inflation information “is in impact outdated information, with consideration now firmly on what’s coming down the tracks on account of the battle within the Center East.”
“Nonetheless, the upside shock in core inflation right this moment can be of concern for the Financial institution given it reveals we’re nonetheless contending with sticky value pressures even earlier than accounting for the current spike in vitality costs,” she added in emailed feedback.
Andrew Bailey, governor of the Financial institution of England (BOE), throughout the Financial Coverage Report information convention on the financial institution’s headquarters within the Metropolis of London, UK, on Thursday, Aug. 1, 2024.
Bloomberg | Bloomberg | Getty Photographs
However Nokes stated that whereas the vitality shock will put upward stress on inflation over the following couple of quarters, “we’re impossible to see an inflation spike in the identical magnitude as 2022” following Russia’s invasion of Ukraine.
“We’re in a really totally different world; the labour market is in a a lot weaker place, and this due to this fact makes it far much less doubtless that staff – involved about rising prices – really feel in a position to push for larger wages and thus entrench value pressures extra broadly,” she stated, advocating for the BOE to carry, somewhat than hike, charges.
Final week, the Financial institution of England’s Financial Coverage Committee voted “unanimously” preserve its benchmark rate of interest on maintain, stating that “battle within the Center East has triggered a big enhance in world vitality and different commodity costs, which can have an effect on households’ gas and utility costs and have oblique results through companies’ prices.”
“Previous to this, there had been continued disinflation in home costs and wages. CPI inflation can be larger within the close to time period on account of the brand new shock to the financial system,” the BOE warned.
The BOE stated its policymakers are “alert to the elevated danger of home inflationary pressures by way of second-round results in wage and price-setting, the danger of which can be higher the longer larger vitality costs persist.”
ING Economist James Smith stated “we do not suppose it’s in any respect clear the bar for fee hikes has been met, at present ranges of oil and gasoline costs.”
“Admittedly no one is aware of precisely the place the brink for hikes really lies; final week’s assembly did not give a lot away. However final summer season, Financial institution analysis steered that second-round results are inclined to change into extra pronounced when headline inflation exceeds 3.5 – 4%. This can be a useful line within the sand,” he added in emailed evaluation.
At present vitality costs, U.Okay. inflation would doubtless peak briefly at 4% within the fall, in keeping with ING. Alternatively, beneath ING’s vitality base case, the place disruption begins to ease by way of the second quarter and vitality costs start to steadily fall again, a peak of three.5% could possibly be hit in September.
