The headline inflation rate in the UK climbed in March, as the war in the Middle East triggered a surge in fuel costs, reinforcing market forecasts that the Bank of England would likely keep interest rates steady at its upcoming monetary policy meeting.
The annual inflation rate accelerated to 3.3% in March from 3% in the previous month, according to data from the Office for National Statistics published Wednesday. The latest figure was consistent with the consensus estimate.
On a monthly basis, the consumer price index rose 0.7%, against the previous 0.4% growth and the expected 0.6% gain.
The ONS largely attributed the increase in inflation to the transport division, particularly higher fuel prices, which Chief Economist Grant Fitzner said saw their largest increase in over three years.
Prices in the transport division increased 4.7% in the 12 months to March 2026, up from 2.4% in the 12 months to February 2026. Overall motor fuel prices jumped 4.9%, marking the highest level recorded since January 2023.
"Airfares were another upward driver this month, alongside rising food prices. The only significant offset came from clothing costs, where prices rose by less than this time last year," Fitzner added. "The monthly cost of both raw materials for businesses and goods leaving factories rose substantially, driven by higher crude oil and petrol prices."
Excluding energy, food, alcohol and tobacco, Britain's annual inflation rate edged down to 3.1% in March, against the prior and projected 3.2%. Month over month, core consumer prices were 0.4% higher, compared with the previous 0.6% gain and the expected 0.5% increase.
"The latest rise in UK headline CPI tells us virtually nothing about the scale and duration of the inflation wave to come. The Bank of England is still flying blind, with the conflict unresolved. But the limited amount of survey data available so far suggests little cause for alarm on inflation," ING said in a note. "So long as inflation doesn't spike materially above 4% - a level above which the Bank has identified as being more likely to trigger a persistent bout of price pressure - we think the BoE will prefer to keep rates on hold this year."
The BoE is scheduled to hold its next monetary policy meeting on April 30.