British consumer price inflation rose to 3.3% in March, up from 3.0% in February, according to official figures published on Wednesday.
The data reflects the first visible impact on prices from tensions in the Middle East.
The rise in inflation matched expectations from economists surveyed by Reuters, who had largely forecast an increase to 3.3%.
The acceleration was mainly driven by higher petrol and fuel costs during the month.
Fuel prices push inflation higher
The increase in energy-related costs comes amid geopolitical tensions that began affecting markets earlier this year.
Economists had anticipated that rising fuel prices would play a key role in pushing inflation higher in March.
Before the US-Israeli war on Iran began on February 28, the Bank of England had projected that Britain’s inflation rate would be close to its 2% target by April.
This outlook reflected a more stable pricing environment before the energy shock.
However, the recent surge in energy prices has altered that trajectory.
Bank of England revises inflation outlook
Last month, the Bank of England sharply increased its inflation forecast due to the energy price shock.
The central bank now expects inflation to rise towards 3.5% by mid-2026.
The International Monetary Fund has issued an even higher projection.
The IMF expects British inflation to peak at around 4% in the coming months, as cited in a Reuters report.
Despite these forecasts, policymakers remain cautious about interpreting the broader implications of rising inflation.
Uncertainty over underlying price pressures
Members of the Bank of England’s rate-setting committee have indicated that it is too early to determine how the rise in headline inflation will affect underlying price pressures.
The weak jobs market could limit wage growth, making it harder for workers to demand higher pay.
At the same time, businesses may face challenges in passing on increased costs to consumers, which could dampen broader inflationary momentum.
Consumer sentiment weakens amid rising economic pressures
British consumer morale deteriorated sharply last month, reflecting mounting concerns over inflation and geopolitical tensions.
Data from S&P Global showed its consumer sentiment index fell to 42.3 from 44.1, marking a 33-month low, while a separate quarterly survey by Deloitte indicated confidence dropped to its weakest level since the third quarter of 2023.
Both surveys highlighted growing pressure on household finances and job security.
Investors believe Britain is particularly exposed to rising energy prices following US-Israeli attacks on Iran that began in late February, adding to cost-of-living concerns.
The uncertainty intensified further amid tensions around a potential ceasefire, with reports of a seized Iranian cargo ship and threats of retaliation.
Céline Fenech, consumer insight lead at Deloitte UK, said, “Many were already facing a squeeze on their household budgets at the start of the year with the slowing of wage growth and a cooling jobs market,” as mentioned in the Deloitte report.
Additional data from Rightmove showed asking prices for British homes rose 0.8% month-on-month in April, but the increase was weaker than typical seasonal trends, signalling strain in the housing market.
Fenech added, “With the prospect of another increase in the price of essentials, consumer confidence continues to be tested and is trending downwards to levels last seen four years ago. For consumer sentiment and spending to improve, households will want to see a more certain outlook for the economy.”
Meanwhile, S&P Global noted that more than half of households expect the Bank of England to raise interest rates, although Governor Andrew Bailey has suggested markets may be overestimating the likelihood of further tightening
Interest rate outlook remains divided
The Bank of England is widely expected to keep borrowing costs unchanged at its next Monetary Policy Committee meeting scheduled for April 30.
However, market expectations remain mixed.
Financial markets on Tuesday were pricing in one or possibly two quarter-point interest rate hikes by the central bank this year.
The latest inflation data underscores the growing impact of external shocks on the UK economy.
While inflation has risen in line with expectations, uncertainty remains over how persistent these pressures will be.
Policymakers are likely to closely monitor developments in energy markets and labour conditions before making further decisions on interest rates.
The post Britain’s inflation climbs to 3.3% amid Iran war pressure appeared first on Invezz
