British consumer price inflation climbed to 3.3% in March, up from 3.0% in February, according to official data released on Wednesday. The figure matched economist expectations and marks the first visible impact of Middle East tensions on UK prices.
The acceleration was primarily driven by higher petrol and fuel costs. Before the US-Israeli war on Iran began on February 28, the Bank of England had projected inflation would be close to its 2% target by April. However, the energy shock has altered that trajectory, with the central bank now expecting inflation to rise toward 3.5% by mid-2026. The International Monetary Fund projects an even higher peak of around 4% in the coming months.
Underlying price pressures remain a concern. Core CPI inflation, which excludes volatile food and energy, rose to 4.1%, while services inflation remained stubbornly high at 5.7%. These figures indicate broad-based price pressures beyond temporary supply shocks.
Consumer sentiment deteriorated sharply, with S&P Global's index falling to 42.3 — a 33-month low. A Deloitte survey showed confidence dropped to its weakest level since Q3 2023. Céline Fenech, consumer insight lead at Deloitte UK, noted: "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."
Market expectations for interest rate hikes have increased. Financial markets are pricing in one or possibly two quarter-point rate hikes by the Bank of England this year. Short-term gilt yields edged higher, and the pound sterling strengthened against the US dollar and euro. The Bank of England is widely expected to keep borrowing costs unchanged at its next Monetary Policy Committee meeting on April 30, but the pressure for tighter policy is mounting.
