UK inflation holds steady at 3% ahead of war in the Middle East

25th Mar 2026 07:00

(Sharecast News) - UK inflation was unchanged in February, official data showed on Wednesday, in line with forecasts.

According to the Office for National Statistics, the consumer prices index in the 12 months to February showed no change on January, at 3%.

The largest upward driver was the price of clothing, which jumped 0.9% compared to no change a month earlier. But that was offset by falls in the cost of petrol ahead of war starting in the Middle East.

Grant Fitzner, chief economist at the ONS, added: "A fall in the cost of alcoholic drinks due to promotional activity, compared with a rise last year, was also a downward driver, while little change in food prices - again compared with a small rise this time last year - added further downward pressure."

However, core CPI, which strips out the more volatile prices of energy, food, alcohol and tobacco, edged up to 3.2% from 3.1%.

CPI including owner occupiers' housing costs (CPIH) rose by 3.2% in February, also unchanged on January.

The data predates the US-Israeli attacks on Iran at the end of February, which sent global energy prices soaring as the conflict rapidly spread throughout the region and the Strait of Hormuz, a vital shipping route, ground to a virtual halt.

The Bank of England had previously forecast that inflation would fall to 2.1% in the second quarter of this year, towards its long-term 2% target.

The rate-setting Monetary Policy Committee had been expected to trim Bank Rate at its March meeting. Instead, it left the cost of borrowing on hold, in response to the war, and said it "ready to act" to keep inflation under control.

However, James Smith, developed markets economist, UK, at ING, said: "Current pricing for the BoE looks extreme. Markets are pricing in three hikes this year, albeit those expectations are likely being distorted by poor liquidity in the swaps market. We don't think it is at all clear that the bar for rate hikes has been met, at current levels of oil and gas prices. Our revised BoE base case is a pause throughout 2026, with rate cuts resuming in early 2027."

Matt Swannell, chief economic advisor to EY Item Club, said: "Rising inflation in the coming months is all but guaranteed, as the impact of the Middle East conflict feeds through.

"High-frequency data suggests petrol prices have already increased sharply over the past few weeks in response to higher oil prices. Domestic energy bills are also set to rise substantially in July, when the next change in the energy price came cap comes into force. Higher oil and gas prices will also put upward pressure on the prices of other goods and services, particularly those that are more energy intensive.

"We expect headline inflation to top 4% in the second half of 2026, before these increases unwind over the course of 2027."

Kathleen Brooks, research director at XTB, said: "Service price inflation was hotter-than-expected, and core prices rose to 3.2%. This suggests that going into this energy shock, UK inflation was stubbornly above target and the pockets of price declines, like petrol prices, have reversed. This will add to the upward pressure on UK price growth in the coming months."