Inflation in the U.K. climbed in March after prices at the petrol pump surged in the wake of disruption to energy supplies linked to the Iran war, according to official data released Wednesday. The Office for National Statistics said the annual consumer price inflation rate rose to 3.3%, up from 3% the previous month.
The ONS pointed to a jump in motor fuel prices as the central driver of the pickup. It said motor fuel costs increased by 8.7% in the month—its largest monthly rise since June 2022, shortly after Russia’s invasion of Ukraine.
The energy-price shock also fed into other parts of the economy, with the ONS reporting increases that were linked to higher energy costs. Airfares and food prices rose alongside the motor fuel increase, reflecting the way fuel and power expenses can ripple through transport and supply chains.
Rachel Reeves, the U.K. Treasury’s top official, said the cost pressure stems from the Middle East crisis rather than domestic policy choices. Reeves said: “not our war, but it is pushing up bills for families and businesses.”
The inflation print further dimmed expectations among investors that the Bank of England would cut borrowing costs soon. Before the Iran war began on Feb. 28, financial markets had expected the bank to lower its main interest rate from 3.75%, reflecting forecasts that inflation would move back toward the U.K.’s 2% target during the spring.
Looking ahead, market and economist commentary in the reporting suggested inflation could rise further. The story said inflation is set to increase in coming months, possibly to 4%, as higher energy prices continue to filter into household bills.
Economists interviewed said the key question for the Bank of England is whether the energy-driven spike starts to spread more broadly through the economy, including via wages. Luke Bartholomew, deputy chief economist at Aberdeen, said it would be “hard” for workers and firms to push through higher wages and prices, given weakness in both the labor market and the wider British economy.
Bartholomew added that this dynamic should limit the size and extent of the “coming inflation shock.” He said the Bank of England was likely to stay in a “wait-and-see mode,” keeping policy on hold next week and maintaining “maximum optionality” on whether rates would end up increasing or decreasing later this year.
The future path for inflation was tied in the reporting to developments in the Iran war and the Strait of Hormuz, a key chokepoint for global oil shipping. The story said the strait has been largely closed to oil tanker traffic since the start of hostilities, raising concerns over oil and gas supply in many parts of the world.
The reporting also described how quickly oil-market conditions can shift during the conflict. It said oil prices have oscillated in recent weeks between the $90 to $100 a barrel range and had gone higher during the conflict, while also noting that before the war prices were relatively stable around $60 a barrel.