UK Inflation Rises to 3.3% in March Amid Middle East Tensions, Fueling Interest Rate Debate at Bank of England

Inflation jumped to 3.3 per cent in March as the Iran war sparked a sharp increase in fuel prices, according to preliminary data from the Office for National Statistics (ONS).

The rise matched forecasts by economists polled by Reuters, who had expected inflation to accelerate to 3.3 per cent from 3 per cent in the 12 months to February.

Fuel prices saw their largest increase for over three years, with diesel prices nearing £2.00 a litre in some areas by the end of March, the ONS said.

Grant Fitzner, chief economist at the ONS, said inflation climbed in March largely due to increased fuel prices, with airfares and rising food prices also contributing to the upward pressure.

The only significant offset came from clothing costs, which rose by less than during the same period last year.

Core inflation was 3.1 per cent in the year to March, while services inflation, closely monitored by the Bank of England’s Monetary Policy Committee for signs of wage growth pressures, increased to 4.5 per cent from 4.3 per cent in February.

Chancellor Rachel Reeves said her “number one priority” was to “keep costs down”, adding that while the conflict was not the UK’s war, it was pushing up bills for families, and businesses.

Sir Mel Stride criticised Labour’s economic choices, saying they had made the economy more vulnerable to external shocks like the Middle East conflict.

Yael Selfin, chief economist at KPMG UK, warned that the weak state of the economy could prevent a significant acceleration in inflation and predicted interest rates would remain unchanged for the rest of the year.

The inflation data will be analysed by the Bank of England’s Monetary Policy Committee ahead of its next policy meeting, where officials will decide whether to adjust interest rates.

Some economists, including those at JP Morgan and the National Institute of Economic and Social Research, expect at least one interest rate hike this year in response to the energy price shock.

Others suggest the Bank will hold rates steady, with Peel Hunt’s Kallum Pickering suggesting two cuts could come later in the year if disruption in the Strait of Hormuz ends.

The government has said We see working on ways to cut household bills, though no full package is expected to be announced for several weeks.

Petrol and diesel prices have soared since the start of the Iran war, reflecting a jump in global oil prices to nearly $100 a barrel, driven by the closure of the Strait of Hormuz.

The International Monetary Fund has warned that Britain faces the sharpest growth slowdown and joint highest inflation rate in the G7 this year due to the war’s threat of triggering a global recession.

The Bank of England left interest rates unchanged at its last meeting, warning that a prolonged conflict could force it to raise borrowing costs to prevent high inflation from becoming entrenched.

President Trump and US negotiators continue to pressure Iran to accept a deal on shipping routes, while the US has blockaded Iranian ports and Iran has attacked ships in the Strait despite a ceasefire.