UK inflation holds at 3% ahead of expected post-war price surge
UK inflation remained unchanged at 3% in the year to February, offering a brief period of stability before economists expect a renewed surge in price pressures driven by the Middle East conflict.
Figures from the Office for National Statistics (ONS) show that annual inflation held steady following months of gradual decline, with rising clothing prices offset by lower fuel and alcohol costs.
However, the data was collected before the escalation of the US-Israel conflict with Iran, an event that has already triggered sharp increases in global energy prices and is widely expected to feed through into higher inflation in the months ahead.
The main upward pressure on inflation in February came from clothing and footwear, where prices rose by 0.9% over the year. This marked a reversal from the previous month, when clothing prices had shown no increase.
ONS chief economist Grant Fitzner said the rise reflected typical seasonal pricing dynamics, but also highlighted the underlying volatility within the inflation basket.
“At the same time, falling petrol costs and discounted alcohol helped offset some of these increases,” he added, noting that alcohol and tobacco inflation reached its lowest level since early 2022.
While fuel costs helped keep inflation in check in February, that trend has already begun to reverse.
The ONS reported that petrol prices were at their lowest level since June 2021 during the data collection period, with average prices around 131.6p per litre. Since then, wholesale oil prices have surged, pushing pump prices significantly higher.
The price of crude oil has risen sharply following disruptions to global supply chains and shipping routes, particularly through the Strait of Hormuz — a key artery for global energy markets.
This shift is expected to have a cascading effect across the economy, increasing costs not only for transport but also for manufacturing, food production and leisure services as businesses pass on higher input costs.
For many companies, the impact is already being felt.
James Palmer, who runs a bus company in Essex, said fuel costs have risen dramatically in recent weeks, creating uncertainty and forcing difficult decisions.
“Three weeks ago we were paying around £1.21 per litre, now it’s closer to £1.86,” he said, highlighting the speed of the increase. Combined with rising wage costs, he warned that price rises for customers are becoming unavoidable.
“It’s the unpredictability that’s worrying,” he added. “We don’t want to let people down, but we may have no choice.”
Economists expect inflation to rise significantly over the course of 2026, with some forecasts suggesting it could peak at around 4.6% if energy prices remain elevated.
This would mark a reversal from the recent trend of easing inflation and could complicate monetary policy decisions for the Bank of England, which had previously been expected to begin cutting interest rates.
Instead, markets are now pricing in the possibility of further rate increases to contain inflation, a move that would place additional pressure on households and businesses.
The inflation data also comes as wage growth shows signs of slowing. Earnings excluding bonuses rose by 3.8% annually, still ahead of inflation for now, but vulnerable to being overtaken if price growth accelerates.
A renewed squeeze on real incomes could weigh heavily on consumer spending, further slowing economic growth.
Chancellor Rachel Reeves said the government is taking steps to ease the cost of living, including measures to stabilise food prices and improve long-term energy security.
However, economists warn that global factors, particularly energy markets, may limit the effectiveness of domestic policy interventions.
The February inflation figure represents a moment of calm before what could be another period of turbulence.
With energy prices rising, supply chains under strain and interest rate expectations shifting, the UK economy faces a delicate balancing act, one where inflation, growth and living standards are all tightly interconnected.
For now, inflation may be stable. But the forces shaping its next move are already in motion.
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UK inflation holds at 3% ahead of expected post-war price surge
