UK inflation hits 3.3% in March as pump prices surge after Iran war

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U.K. inflation climbed in March after higher petrol prices followed disruption to energy supplies tied to the Iran war, official figures showed Wednesday. The Office for National Statistics said the annual consumer price inflation rate rose to 3.3% from 3% in February. The increase matched market expectations, the data showed.

The ONS attributed much of the rise to energy-linked costs hitting households more quickly at the pump. Motor fuel prices increased by 8.7% in the month, which the report described as the largest jump since June 2022, shortly after Russia’s invasion of Ukraine. The ONS also pointed to higher airfares and food prices, both described as related to the earlier energy-price spike.

Rachel Reeves, the Treasury chief, said the economic impact was reaching into everyday spending despite Britain not being a party to the Iran conflict. She said: “not our war, but it is pushing up bills for families and businesses” as a result.

Economists and markets had expected that inflation would fall back toward the Bank of England’s 2% target during spring, which had supported expectations for lower borrowing costs. The new reading, however, undermined any near-term assumption that the central bank would cut rates as inflation eased.

The AP report said most economists did not currently expect inflation to reach the four-decade highs of above 11% seen after Russia’s invasion in February 2022. It cited two main reasons: oil and gas prices had not spiked as sharply as during that earlier period, and interest rates were higher than they were before the Ukraine invasion.

Bank of England policymakers were said to be watching whether the energy-driven increase spreads through the wider economy, including through wages and broader pricing behavior. For now, economists expect the central bank to keep interest rates on hold at the next policy meeting on April 30.

Luke Bartholomew, deputy chief economist at asset manager Aberdeen, said it would be “hard” to see workers and firms pushing through higher wages and prices because of relative weakness in both the labor market and the British economy. He said that should “ultimately limit the size and extent of the coming inflation shock,” while adding that the Bank of England would likely remain in “wait-and-see mode,” keeping policy on hold next week and maintaining options on whether rates might rise or fall later this year.

The outlook for inflation was tied to how the Iran war develops, including conditions around the Strait of Hormuz, a key shipping route. The AP report said the waterway had been largely closed to oil tanker traffic since hostilities began and that the situation had stoked global fears about oil and gas supplies. It also said a resolution sooner rather than later would limit the long-term impact, with financial markets remaining on edge and energy prices staying volatile, including after oscillations in recent weeks.