UK inflation saw an increase last month attributed to the impact of the Iran conflict on petrol and diesel prices, affecting numerous drivers. Data from the Office for National Statistics (ONS) revealed that the Consumer Prices Index (CPI) inflation rose to 3.3% in March, up from 3% in February, marking the first time inflation figures reflected the elevated costs stemming from the Middle East turmoil.
The surge in oil prices due to disruptions in the Strait of Hormuz, as a result of the war, led to a significant spike in petrol and diesel costs in recent weeks. Despite a slight decrease from their peak prices, RAC data indicated that the average petrol price at UK forecourts was 157.57p per litre, while diesel stood at 190.13p per litre, significantly higher compared to pre-war levels.
Grant Fitzner, the chief economist at the ONS, highlighted that March’s inflation uptick was also driven by increased airfares impacted by rising jet fuel costs and climbing food prices. The inflation figure aligns with economists’ predictions and represents the highest rate since December of the previous year.
The Bank of England previously forecasted inflation to potentially reach 3.5% by the third quarter of the year, surpassing its 2% target. The anticipation of rising energy prices, particularly in wholesale gas, further complicates the inflation outlook.
Chancellor Rachel Reeves acknowledged the indirect financial burden of the Iran crisis on families and businesses, emphasizing the government’s commitment to mitigating cost pressures. Reeves cited existing measures such as reductions in energy bills, frozen rail fares, and fuel duty freezes aimed at shielding consumers from unwarranted price hikes.
The Bank of England’s base rate, currently at 3.75%, influences borrowing costs and plays a critical role in managing inflation. With interest rates impacting consumer spending and demand, the delicate balance between controlling inflation and supporting economic growth remains a central challenge for policymakers.
