UK inflation has risen recently due to increased petrol and diesel prices following the Iran war. The Consumer Prices Index (CPI) inflation reached 3.3% in March, up from 3% in February, according to the latest data from the Office for National Statistics (ONS). This is the first time inflation figures have reflected the higher costs resulting from the Middle East conflict.
The surge in oil prices, caused by disruptions in the Strait of Hormuz due to the war, has led to a significant increase in petrol and diesel costs in the past few weeks. Recent RAC data indicates that the average price of petrol at UK forecourts was 157.57p per litre, with diesel priced at 190.13p per litre. Although these prices have slightly decreased from their peaks, they remain substantially higher than pre-war levels.
Chief economist Grant Fitzner at the ONS noted that March’s inflation was also impacted by increased airfares, driven by rising jet fuel costs, and escalating food prices. This inflation rate aligns with economists’ forecasts and represents the highest level since December of the previous year. The Bank of England previously projected that inflation could reach as high as 3.5% by the third quarter of this year, exceeding its 2% target.
Chancellor Rachel Reeves emphasized that while the Iran crisis is not the UK’s war, it is elevating costs for families and businesses. Reeves highlighted measures taken to mitigate the impact, such as reducing energy bills, freezing rail fares, and protecting motorists with a fuel duty freeze. She emphasized the importance of safeguarding people from price hikes and enhancing long-term energy security to bolster the economy.
Inflation measures the rate at which prices of goods and services increase over time. The Bank of England’s base rate, currently at 3.75%, influences borrowing costs and impacts inflation. Higher interest rates can curb spending, reducing demand and lowering inflation. However, elevated interest rates have increased mortgage payments for homeowners, leading to financial strain. The base rate, which peaked at 5.25% during the cost of living crisis, is used by the Bank to maintain inflation near the 2% target.