UK inflation rose to 3.3% in the year to March, up from 3% in February, after the US-Israel war with Iran triggered the sharpest monthly rise in petrol and diesel prices for more than three years.
The Office for National Statistics (ONS) said the increase was “largely due to increased fuel prices”, with airfares and food prices also adding pressure. Clothing prices provided the main offset, rising by less than they did at the same point last year.
The figures are the first official indication of how the Middle East conflict is feeding through into UK living costs. Economists now expect inflation to remain higher this year than previously forecast, with some predicting it could peak between 3.5% and 4%.
That would still be far below the double-digit inflation seen after Russia’s full-scale invasion of Ukraine in 2022, but it would keep inflation above the Bank of England’s 2% target.
Fuel prices drive the rise
Wholesale energy prices have climbed sharply since the Iran war began on 28 February. Disruption to energy production and transport across the Middle East has pushed up crude oil and fuel costs.
The ONS collected its March price data in the middle of the month, a few weeks into the conflict.
Motor fuel prices rose by 8.7% between February and March, the largest monthly increase since June 2022. Over the year, fuel prices were 4.9% higher, the strongest annual rise since January 2023.
ONS chief economist Grant Fitzner said the monthly cost of raw materials for businesses and goods leaving factories had also risen sharply, driven by higher crude oil and petrol prices.
Higher fuel costs affect more than only motorists. They increase transport, production and distribution costs for many businesses, which can then feed into wider prices across the economy.
Airfares and food add pressure
Airfares also contributed to the March rise, though the increase was partly due to Easter timing. The long-haul flights monitored by the ONS included return dates after the Easter weekend and were recorded before the Iran war began.
Food inflation rose from 3.3% to 3.7% in the year to March. Chocolate and confectionery, meat, fish and soft drinks were among the main contributors, with Easter demand likely to have played a role.
However, food prices may face further pressure later in the year. Cost increases in the food supply chain can take several months to appear on supermarket shelves, often between seven and 13 months.
The Food and Drink Federation has warned that food inflation could reach 10% by the end of the year.
Bank faces tougher decision
Before the conflict, interest rates were widely expected to fall this year. The renewed threat of higher inflation has raised questions about whether the Bank of England will keep rates on hold or even consider raising them again.
The Bank’s Monetary Policy Committee is meeting on 30 April, with the current interest rate standing at 3.75%.
Higher energy prices create a difficult trade-off. They push inflation up, but they can also weaken the economy by leaving households and businesses with less money to spend.
Chancellor Rachel Reeves said the conflict was pushing up bills for families and businesses, adding that keeping costs down remained her “number one priority”.
Shadow chancellor Sir Mel Stride said the war was contributing to inflation, but argued that Labour’s tax, spending and energy decisions had left the UK more exposed.
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