UK inflation climbed to 3.3% in March, official data showed Wednesday, as the war with Iran drove a sharp rise in fuel costs and handed the Bank of England a difficult decision ahead of its April 30 meeting.
The figure matched forecasts from economists polled by Reuters and marked a jump from 3% in the 12 months to February. It is the first hard data showing how the Iran conflict, which began on February 28, has filtered through to British consumer prices.
Grant Fitzner, chief economist at the Office for National Statistics, said higher fuel prices were the primary driver, with the monthly increase the steepest in over three years. "Airfares were another upward driver this month, alongside rising food prices," Fitzner wrote on X. "The monthly cost of both raw materials for businesses and goods leaving factories rose substantially, driven by higher crude oil and petrol prices." He noted that cheaper clothing was the only meaningful offset.
Britain is particularly exposed to global energy shocks because it is a net importer of energy. Conflict in the Middle East tends to ripple quickly into pump prices and heating costs. Sanjay Raja, chief UK economist at Deutsche Bank, had warned ahead of the data release that "pump prices and heating oil prices are likely to see a big increase to end the quarter" as the war's repercussions reached British shores.
In financial markets, the news landed alongside a cautious mood across Europe. The pan-European Stoxx 600 edged 0.2% higher in early trading Wednesday, while London's FTSE 100 traded flat. The yield on the benchmark 10-year UK government bond fell nearly two basis points to 4.873%, and sterling gained 0.1% against the dollar to trade around $1.35.
The ceasefire picture remained complicated. US President Donald Trump extended his two-week ceasefire with Iran on Tuesday, saying it would continue until Tehran's leadership submitted a "unified proposal" to end the conflict. He also said he would not lift the US blockade of Iranian ports, writing on Truth Social that lifting the blockade would mean "there can never be a Deal with Iran." A second round of peace talks that had been expected in Pakistan this week was put on hold after Iranian negotiators informed US counterparts through an intermediary that they would not appear.
That unresolved backdrop is shaping how economists think about UK inflation in the months ahead. Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said the extended ceasefire "won't prevent a painful period of accelerating inflation with skyrocketing energy costs and food prices likely to lift the headline rate above 4% by the autumn." He added that weakening economic demand should eventually pull prices back down, giving the Bank of England room to hold rates steady rather than tighten.
That is broadly where most forecasters have settled. A Reuters poll conducted in the past week found a majority of economists expect the Bank of England to keep rates unchanged for the rest of the year. Policymakers are expected to "look through" the inflation spike on the grounds that it stems from an external shock rather than domestic demand. There is also concern about reinforcing a stagflation dynamic — slow growth, high inflation, and rising unemployment — if the central bank raises rates into a weakening economy. Before the war began, the Bank had been widely expected to cut rates as inflation was tracking back toward its 2% target.
The April 30 meeting will now be the first real test of how rate-setters weigh those competing pressures, with traders and economists watching closely for any signal that the inflation trajectory has become too uncomfortable to ignore.
