UK inflation rose by 3.3% in March after the surge in fuel prices triggered by the Iran war led to the biggest jump in transport costs since December 2022.
Figures from the Office for National Statistics (ONS) show the consumer prices index increased last month from 3% in February, adding to pressure on household finances already battered by a cost of living crisis. The rise matched City economists’s forecasts.
Grant Fitzner, the ONS chief economist, said: “Inflation climbed in March, largely due to increased fuel prices, which saw their largest increase for over three years.
“Air fares were another upward driver this month, alongside rising food prices.”
Petrol and diesel prices have soared since the start of the US-Israeli war on Iran, reflecting a jump in the global oil price to close to $100 a barrel as the closure of the critical strait of Hormuz throttles energy supplies.
The International Monetary Fund has warned that Britain faces the sharpest growth slowdown and joint highest inflation rate in the G7 this year as the war in the Middle East threatens to trigger a global recession.
March’s headline rate of inflation remains above the 2% target set by the government. The Bank of England left interest rates unchanged last month while warning that a prolonged conflict and disruption to global energy markets could force it to raise the borrowing costs to stop high inflation from becoming entrenched.
Before the war, inflation had been predicted to fall sharply in April as measures announced in Rachel Reeves’s autumn budget, including cuts to energy bills, come into effect. However, while a drop to almost 2% had been predicted, forecasters now anticipate inflation will remain stubbornly high this year amid the mounting economic damage from the war.
The chancellor said the government was taking action to protect consumers from price increases.
“This is not our war, but it is pushing up bills for families and businesses. That’s why it’s my number one priority to keep costs down,” Rachel Reeves said.
“Our economic plan is the right one and has put us in a stronger position to support families in the face of this new crisis.”
The latest snapshot from the ONS showed overall transport prices – including motor fuel costs and air fares – rose by 4.7% in the year to March, up from 2.4% in the 12 months to February, hitting the fastest annual rate since December 2022.
The average price of petrol rose by 8.6p a litre between February and March to 140.2p, the highest level since August 2024. Diesel prices rose by 17.6p a litre to 158.7p, the highest since November 2023.
Fitzner said: “The only significant offset came from clothing costs, where prices rose by less than this time last year.
“The monthly cost of both raw materials for businesses and goods leaving factories rose substantially, driven by higher crude oil and petrol prices.”
Fuel prices are collected over the month and an average is used for estimating inflation. With a continued sharp increase in petrol and diesel prices, economists predict a further rise in the headline inflation rate in April.
Martin Beck, the chief economist at WPI Strategy, said: “How far inflation rises from here will depend heavily on developments in the Middle East.
“If recent signs of diplomatic progress translate into a sustained easing in tensions and energy supplies normalise, inflation could peak at about 3.5-4% this summer. But a renewed escalation could just as easily push inflation towards 5%.”