UK inflation held steady at 3.0 percent in February but is widely expected to accelerate sharply in the months ahead as the conflict in the Middle East involving Iran drives energy costs higher, forcing the Bank of England (BoE) to abandon any near-term plans for interest rate cuts.
Data published this morning by the Office for National Statistics (ONS) showed the Consumer Prices Index (CPI) unchanged from January, in line with market expectations. The figures cover the final monthly period before the United States and Israel launched airstrikes on Iran in late February, prompting retaliatory strikes that triggered an almost total blockade of the Strait of Hormuz, sending global energy prices sharply higher.
James Green, regional director of deVere Group, one of the world’s largest independent financial advisory organisations, described today’s reading as a false picture of what lies ahead. “Today’s UK inflation data reflects the period just before a renewed surge in global energy prices tied to escalating tensions involving Iran,” he said, warning that energy costs are now feeding directly into every part of the economy, from transport and food to manufacturing and household bills.
The warning is consistent with assessments from several independent economists published today. Deutsche Bank’s chief UK economist Sanjay Raja said inflation is “poised for another unwelcome detour,” while ICAEW’s chief economist Suren Thiru described a “brutal inflation surge” as imminent, forecasting the headline rate could rise above 4 percent by summer.
Core inflation, which strips out energy, food, alcohol and tobacco, rose to 3.2 percent in February from 3.1 percent in January, a reading that J.P. Morgan Asset Management’s global market analyst Zara Nokes described as a concern for the BoE, showing that domestic price pressures were already sticky before the energy shock took hold.
The BoE’s Monetary Policy Committee (MPC) voted unanimously at its March 19 meeting to hold its benchmark interest rate at 3.75 percent, citing the conflict in the Middle East as a significant new shock that will push up household fuel and utility prices and generate indirect cost pressures across businesses. The central bank had been expected to cut rates twice in 2026 before the conflict fundamentally reordered those projections.
Green said financial markets are already repricing rate expectations. “The idea of rapid cuts this year is becoming increasingly unlikely. The Bank of England will be unlikely to ease policy while inflation is accelerating again,” he said, adding that mortgage holders face sustained pressure, refinancing costs remain elevated, and household disposable income faces a simultaneous squeeze from rising living costs.
For businesses, the environment is equally difficult. Rising input costs, higher financing expenses and increasingly cautious consumers create a backdrop that Green described as one where companies are being squeezed from both sides.
Duration remains the central unknown. A short-lived energy shock could allow inflation to peak and recede before the end of the year. A prolonged conflict sustaining pressure on oil and gas markets would materially alter that trajectory and make rate rises, rather than cuts, the more likely policy response.
