UK inflation accelerates after Iran war drives sharp rise in fuel prices

UK inflation lifted to its highest since December after a sharp jump in diesel and petrol prices caused by the conflict in the Middle East, according to official figures.

Chancellor Rachel Reeves said the Iran crisis was “not our war, but it is pushing up bills for families and businesses” as a result.

The rate of Consumer Prices Index (CPI) inflation increased to 3.3% in March from 3% in February, the Office for National Statistics said.

The increase was in line with predictions from economists.

Higher motor fuel was the main driver of the acceleration in inflation, increasing by 8.7% month-on-month – the largest increase since June 2022, shortly after the Russian invasion of Ukraine.

The ONS found that the average price of petrol rose by 8.6p per litre between February and March to 140.2p per litre. This marked the highest price since August 2024.

Diesel prices meanwhile increased by 17.6p per litre in March to an average of 158.7p per litre, the highest price since November 2023.

Office for National Statistics chief economist Grant Fitzner 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.

“The only significant offset came from clothing costs, where prices rose by less than this time last year.”

The data revealed that the cost of air travel also increased significantly, with inflation of 14.5% compared with the same month last year.

The rise in air fares, which analysts have partly linked to the early timing of the Easter holidays, was the highest since July last year.

Meanwhile, food and non-alcoholic drink prices were up 3.7% year-on-year in March, accelerating from 3.3% inflation in the previous month.

This included another acceleration in the price of sweets and chocolates, which were up 10.6% year-on-year.

Elsewhere, clothing and footwear had a downward pressure on inflation, as prices dipped 0.8% for the month.

Sales and discounting activity pulled inflation in the category to its lowest level since March 2021.

The rise in the overall rate of inflation drives the UK further away from the 2% inflation target set by the Government and the Bank of England.

Ms Reeves said: “We’re acting to protect people from unfair price rises if they occur to bring down food prices at the till, and are boosting long-term energy security — building a stronger, more secure economy.”

James Smith, developed markets economist at ING, said: “The latest rise in UK headline CPI tells us virtually nothing about the scale and duration of the inflation wave to come.

“The Bank of England is still flying blind, with the conflict unresolved, but the limited amount of survey data available so far suggests little cause for alarm on inflation.”

Anna Leach, chief economist at the Institute of Directors, said: “As inflation has come in in line with revised expectations, and given yesterday’s labour market data which showed a fall in vacancies and further downward progress in wage growth, interest rates should hold at next week’s MPC (Monetary Policy Committee) meeting.

“But there remains tremendous uncertainty over the outlook for energy supply and prices.”