finance
UK Inflation Hits 3.3% in March as Iran War Drives Up Fuel Prices
UK inflation rose to 3.3% in the year to March, driven primarily by an 8.7% monthly increase in motor fuel prices following the start of the US-Israel war with Iran on February 28. Economists predict inflation could peak at 3.5% to 4% this year, exceeding the Bank of England's 2% target, while higher energy costs may slow economic growth.
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The UK inflation rate increased to 3.3% in the 12 months to March, up from 3% in February, according to the Office for National Statistics. This rise was largely attributed to higher fuel prices stemming from the US-Israel war with Iran, which began on February 28.
Motor fuel prices jumped 8.7% month-on-month, the largest increase since June 2022, and rose 4.9% over the year, the highest annual rise since January 2023. Airfares and food prices also contributed to the uptick, though clothing costs provided some offset by rising less than the previous year.
The data was collected mid-March, several weeks into the conflict, which has disrupted energy production and transportation in the Middle East through missile strikes and drone attacks.
Wholesale energy prices have surged since the war's onset, with economists forecasting UK inflation could peak between 3.5% and 4% this year. This exceeds the Bank of England's 2% target but remains below the double-digit rates seen early in the 2022 Ukraine war.
Higher energy costs are expected to constrain spending by households and businesses, potentially slowing economic growth. The monthly cost of raw materials for businesses and factory gate prices rose substantially, driven by elevated crude oil and petrol prices, the Office for National Statistics reported.
Food inflation increased from 3.3% to 3.7% in the year to March, influenced by rises in chocolate, confectionery, meat, fish, and soft drinks, partly linked to Easter timing.
“This is just the first wave of the energy shock, primarily showing up in higher prices at the pump. We are yet to see the knock-on impact of price pressures in downstream or byproducts to oil and gas, such as fertiliser, helium, plastics or metals.”
