Quick overview

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Rising energy costs following the conflict in the Middle East pushed prices higher in March, complicating the outlook for the Bank of England, which now faces a dilemma between keeping rates elevated or supporting an economy showing signs of slowing.

Inflation in the United Kingdom accelerated again in March, reaching its highest level so far in 2026, driven mainly by a sharp increase in fuel prices after the escalation of tensions in the Middle East.

According to the Office for National Statistics, the Consumer Price Index rose to 3.3% year-over-year—up 0.3 percentage points from February and in line with market expectations. The data highlights how the conflict in a key oil-producing region is once again feeding into developed economies through higher energy and logistics costs.

Fuel drives the increase

ONS Chief Economist Grant Fitzner noted that the rebound was largely due to rising fuel prices, which recorded their biggest increase in more than three years.

He also pointed to higher input costs for businesses and rising factory gate prices, amid more expensive crude oil and gasoline. This was compounded by increases in food prices and airfares.

Transport takes the biggest hit

The most visible impact was in the transport sector, where prices rose 4.7% year-over-year, up from 2.4% in February—the highest rate since December 2022.

Within that category, motor fuel prices climbed 4.9% in March, reversing a 4.6% decline in February and marking the largest increase since January 2023.

Housing and household services prices rose 4.3%, up slightly from the previous month, driven in part by higher heating oil costs. Meanwhile, food and non-alcoholic beverages increased 3.7%, accelerating by 0.4 percentage points.

The only partial relief came from clothing and footwear, where prices fell 0.8%, compared with a 0.9% increase in February.

Core inflation shows slight easing

Core inflation—which excludes energy and fresh food—came in at 3.1%, down slightly from the previous reading. While this suggests some moderation, it remains elevated and above the official target.

The latest inflation data comes ahead of the Bank of England’s next policy meeting on April 30. The central bank faces a complex scenario: maintain high rates to contain inflation or begin easing policy to avoid a deeper economic slowdown.

Analysts at ING noted that it is still too early to assess how long the new inflationary wave driven by the energy shock will last. In their view, as long as inflation does not clearly exceed 4%, the Bank of England may opt to keep rates unchanged this year.