Middle East Conflict Triggers UK Inflation Spike: CPI Hits 3.3% as Fuel Prices Skyrocket in March

British consumer price inflation rose to an annual rate of 3.3% in March from 3.0% in February, according to official figures published on Wednesday which showed the first impact on prices from the war in the Middle East.

Factory gate prices also rose sharply and by much more than expected, the figures from the Office for National Statistics showed.

Economists polled by Reuters had mostly expected the headline rate of consumer price inflation to accelerate to 3.3%, driven by a rise in petrol and other fuel costs during March.

The price of motor fuels jumped by 8.7% on the month, the biggest rise since June 2022, shortly after Russia's full-scale invasion of Ukraine.

The data from the Office for National Statistics showed services price inflation - which the BoE watches closely as a gauge of longer-term inflation pressures - rose to 4.5% from 4.3% in February. The economists polled by Reuters had expected it to hold at 4.3%.

Core inflation, which excludes more volatile food, energy, alcohol and tobacco prices, weakened to 3.1% from 3.2% in February. The poll had pointed to another reading of 3.2%.

Before the U.S.-Israeli war on Iran began on February 28, the Bank of England said Britain's inflation rate - the highest among the Group of Seven economies for much of the last four years - was likely to be close to its 2% target in April.

But the BoE last month sharply increased its inflation forecast due to the energy price shock, predicting it would rise towards 3.5% by the middle of 2026. The International Monetary Fund last week predicted British inflation would peak at 4% in the coming months.

However, the BoE's interest rate-setters have mostly said it is too soon to know what the rise in headline inflation will mean for underlying price pressures in the economy, given the weak jobs market which could make it harder for workers to demand higher pay or for businesses to pass on higher costs.

The British central bank is expected to keep borrowing costs on hold on April 30 at the end of its next scheduled Monetary Policy Committee meeting.

Financial markets on Tuesday were betting on one or possibly two quarter-point interest rate rises by the BoE this year. But a Reuters poll of economists showed most expected no change in borrowing costs during 2026. (Writing by William Schomberg; Editing by Muvija M)

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