UK inflation jumped to 3.3% in March as consumers felt the impact of the war in the Middle East in the form of higher petrol prices.
The UK Consumer Prices Index rose 3.3% in the 12 months to March, up from 3.0% in February, in line with economists’ expectations.
“It was always a question of how much UK inflation would rise after the war with Iran broke out,” said Scott Gardner, investment strategist at J.P. Morgan Personal Investing.
“As this latest reading shows, we are starting to see the disruption in the Strait of Hormuz and the resulting spike in energy prices feed into elevated UK prices. The early inflationary signs are troubling, and this renewed increase in UK inflation will keep policymakers on alert over the short term.”
The big concern is that higher inflation persists for several months, with ongoing disruption in the Middle East keeping oil prices elevated.
While higher oil prices are increasing the chances of a Bank of England interest rate cut later this year, this is far from a certainty, and some analysts believe UK rates will be held rather than increased.
Emma Wall, Chief Investment Strategist, Hargreaves Lansdown, said: “Inflation is likely to remain elevated in April too, and markets are now pricing in one rate rise later this year, but our house view is that rates are held through the conflict – returning to the expected rate cutting cycle later than forecast just a couple of months ago, but on path to neutral next year.”
Core inflation, which strips out energy, food, alcohol and tobacco, edged down to 3.1% from 3.2%, but services inflation ticked up, which makes the job for the Bank of England that much more difficult.