UK inflation rises to 3.3% amid fuel price surge linked to Iran conflict
Bank of England warns prolonged Middle East war could force interest rate hikes as household finances face further pressure
Quick Look
- UK inflation rose to 3.3% in March from 3% in February, matching economists' forecasts, as fuel prices surged following the outbreak of the US-Israeli war on Iran.
- The conflict has pushed global oil prices to around $100/barrel and threatened supplies through the Strait of Hormuz.
- The IMF warned Britain faces the sharpest growth slowdown and joint highest inflation in the G7 this year.
AI-generated summary
Why It Matters
UK inflation had been expected to fall sharply to almost 2% in April following energy bill cuts announced in Rachel Reeves's autumn budget. However, the outbreak of the Iran conflict has disrupted these forecasts, with inflation now expected to remain stubbornly high throughout 2026.
UK inflation rose by 3.3% in March amid the surge in fuel prices for motorists triggered by the Iran war. Figures from the Office for National Statistics (ONS) show the consumer prices index increased last month from 3% in February, adding to pressure on household finances already battered by a cost of living crisis. The rise matched City economists's forecast of an increase to 3.3%. Petrol and diesel prices have soared since the start of the US-Israeli war on Iran, reflecting a jump in the global oil price to about $100 a barrel as the closure of the critical strait of Hormuz throttles energy supplies. The International Monetary Fund has warned that Britain faces the sharpest growth slowdown and joint highest inflation rate in the G7 this year as the war in the Middle East threatens to trigger a global recession. March's headline rate of inflation remains above the 2% target set by the government. The Bank of England left interest rates unchanged last month while warning that a prolonged conflict and disruption to global energy markets could force it to raise the borrowing costs to stop high inflation from becoming entrenched. Before the war, inflation had been predicted to fall sharply in April as measures announced in Rachel Reeves's autumn budget, including cuts to energy bills, come into effect. However, while a drop to almost 2% had been predicted, forecasters now anticipate inflation will remain stubbornly high this year amid the mounting economic damage from the war. More details soon …
What to Watch
AI outlook — possibilities, not facts
Bank of England will likely raise interest rates if Iran conflict continues
Likely · Within months
UK inflation will remain above 2% target through most of 2026
Very likely · Within months
Further fuel price increases likely if Strait of Hormuz remains disrupted
Very likely · Within weeks
Open Questions
- How long will the Iran conflict continue to affect energy prices?
- Will the Bank of England be forced to raise interest rates?
- Will the IMF's recession warning prove accurate?
