UK inflation saw an increase last month as petrol and diesel prices surged due to the Iran war, impacting millions of drivers. According to the Office for National Statistics (ONS), the Consumer Prices Index (CPI) inflation rose to 3.3% in March, up from 3% in February, marking the first instance where inflation figures reflected the higher costs resulting from the Middle East conflict.
The conflict in the Middle East led to a notable spike in oil prices following disruptions in the Strait of Hormuz, subsequently driving petrol and diesel costs to soar in recent weeks. Recent data from RAC revealed that the average price of petrol at UK forecourts stood at 157.57p per litre, while diesel was at 190.13p per litre. Although there has been a slight decline from the peak prices, they remain significantly elevated compared to pre-war levels.
Grant Fitzner, the chief economist at the ONS, attributed the inflation increase in March to escalated airfares influenced by higher jet fuel costs and rising food prices. This inflation figure is consistent with economists’ predictions and represents the highest rate since December last year. The Bank of England anticipates inflation to potentially reach 3.5% by the third quarter of this year, surpassing its 2% target.
Chancellor Rachel Reeves emphasized that while the Iran crisis is not the UK’s war, it is impacting households and businesses by driving up expenses. Reeves highlighted government measures aimed at mitigating cost increases, including reductions in energy bills, frozen rail fares, and protection for motorists through a fuel duty freeze.
Inflation measures the rate of price increases for goods and services over time. The ONS calculates inflation based on a basket of goods and services regularly updated to reflect consumer spending habits. The Bank of England’s base rate, currently at 3.75%, influences interest rates and is used to manage inflation levels.
Higher interest rates can curb spending, reduce demand, and lower inflation, but they can also strain households with increased mortgage payments. The base rate, which peaked at 5.25% previously, aims to maintain inflation close to the 2% target by regulating borrowing costs and economic activity.
