UK inflation accelerated to 3.3% in March 2026, its highest level in over three years, according to official figures released by the Office for National Statistics (ONS). The sharp rise, driven largely by increased fuel prices amid the ongoing Middle East conflict, presents a significant challenge for the Bank of England's Monetary Policy Committee (MPC) as policymakers consider their next move on interest rates.
Inflation drivers and core metrics
The consumer price index (CPI) figure matched forecasts from City economists. Core inflation, which excludes volatile items like energy and food, stood at 3.1% in the year to March. Services inflation, a key indicator closely monitored by the MPC for signs of wage growth pressures, edged higher to 4.5%, up from 4.3% in February.
Grant Fitzner, chief economist at the ONS, said: "Inflation climbed in March, largely due to increased fuel prices, which saw their largest increase for over three years. Airfares were another upward driver this month, alongside food prices."
Political reactions and economic outlook
Chancellor Rachel Reeves stated that her "number one priority" was to "keep costs down." She added: "This is not our war, but it is pushing up bills for families and businesses." Shadow Chancellor Sir Mel Stride countered: "The conflict in the Middle East is increasing inflation – but Labour's choices have made everything worse and made our economy vulnerable."
Yael Selfin, chief economist at KPMG UK, suggested that the "weak state of the economy" could prevent a "significant acceleration" in inflation. She forecast that interest rates would remain on hold throughout the year.
Bank of England decision ahead
The figures will be scrutinised by the Bank's rate-setters ahead of a pivotal monetary policy decision next week. City analysts are divided over the MPC's next move. A sharp rise in inflation could prompt the Bank to reverse the interest rate cuts witnessed over the past two years. Some economists, including those at JP Morgan and the National Institute of Economic and Social Research, anticipate the Bank will raise interest rates at least once this year in response to the energy price shock. Others argue the Bank will hold off, while Peel Hunt's Kallum Pickering has suggested two cuts could materialise later this year if disruption in the Strait of Hormuz comes to an end.
Broader context and government response
The surge in inflation is linked to severe trade disruption across the Strait of Hormuz, triggered by the conflict involving President Trump and Prime Minister Netanyahu's war on Iran. The US has blockaded Iranian ports, while Iran has targeted vessels passing through the strait despite a ceasefire being in place. The government has been exploring ways to ease household bills, though a comprehensive package announcement is not expected for several weeks.
