LONDON – The latest inflation data from the Office for National Statistics would ordinarily be welcomed, but the relief for UK households is likely to prove short-lived.
The headline consumer price index rose 3.0% y/y in February, in line with forecasts and unchanged from the January rate. On the month, CPI rebounded 0.4% after a 0.5% decline at the first of the year.
Core CPI, which excludes energy, food, alcohol and tobacco, last month increased 3.2% y/y, a tenth above both forecasts and the previous reading.
ONS chief economist Grant Fitzner said clothing prices provided the largest upward contribution, rising this month but falling a year earlier. However, this was partly offset by declines in the cost of petrol, reflecting data collected before the escalation of the Middle East conflict and the subsequent rise in crude prices. He added that promotional activity drove a fall in alcohol prices, while broadly unchanged food prices — compared with modest increases a year ago — also exerted downward pressure.
Food and non-alcoholic beverage prices rose 3.3% in the 12 months to February, easing from 3.6% in January and marking the lowest annual rate since March 2025.
Fitzner also noted that February’s release incorporated supermarket scanner data for the first time, replacing many physically collected prices and improving the accuracy of price measurement.
The firmness in core inflation reflected resilient services CPI, driven in part by increases in private rents, travel and accommodation costs, according to Deutsche Bank’s Sanjay Raja. “The good news is that the starting point for the Monetary Policy Committee looks broadly as it set out in the March decision. The bad news? Inflation is poised for another unwelcome detour.”
Factory gate prices paint softer picture
Output prices rose 1.7% y/y in February, slowing from 2.5% previously, while falling 0.5% m/m after a flat January reading. Food product output prices increased 2.4% y/y, down from 3.2%, while the largest downward contribution came from coke and refined petroleum products. Prices in that category fell 8.6% on the year.
Input prices rose 0.5% y/y, up slightly from 0.4%, while monthly input inflation accelerated to 0.8% from 0.4%.
However, the data is already outdated. February’s figures do not capture the sharp rise in energy costs following the escalation of the conflict in the Middle East.
At the start of March, US President Donald Trump, alongside Israel’s Benjamin Netanyahu, announced military action against Iran, targeting key sites including Kharg Island, a critical oil export hub. In response, Iran’s Islamic Revolutionary Guard Corps has launched retaliatory strikes across the region, including missile and drone attacks on energy infrastructure in neighbouring countries hosting US bases.
The resulting surge in oil and gas prices is expected to feed through quickly into inflation.
Tricky policy path
On Tuesday, UK finance minister Rachel Reeves said the government stood ready to support vulnerable households facing rising energy costs, though she stopped short of detailing specific measures.
The Bank of England last week voted unanimously to hold its benchmark interest rate at 3.75%, citing heightened geopolitical uncertainty. Policymakers warned that rising energy prices would likely lift household utility bills and increase cost pressures for businesses.
“A return to the bank’s 2% target now looks like a distant memory,” said Deutsche’s Raja. “Pump prices have risen by nearly 7% in March and are likely to rise by a similar amount in April. July dual-fuel bills are poised to increase by close to 30%. Markets no longer expect a swift decline in energy prices, and spillovers into the broader CPI basket are becoming more likely.”
ING’s James Smith said the BoE is more likely to remain on hold than resume tightening, even with inflation at or above 3%. “At current energy prices, UK inflation is set to peak between 3.5–4% this autumn — around one percentage point higher than we expected pre-war. That’s not a game-changer for a central bank that was close to cutting rates, but it does reinforce the case for an extended pause through 2026. Further energy shocks could still force a rethink, but that is not our base case.”
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- Core inflation firm, services, rents underpin prices
- Pipeline inflation softens despite lingering input costs
- Middle East conflict set to reignite energy-driven inflation
- BoE faces prolonged pause as risks intensify
By Harry Daniels
LiveSquawk News
@HarryDaniels71
25 March 2026 | 16:30 GMT
LONDON – The latest inflation data from the Office for National Statistics would ordinarily be welcomed, but the relief for UK households is likely to prove short-lived.
The headline consumer price index rose 3.0% y/y in February, in line with forecasts and unchanged from the January rate. On the month, CPI rebounded 0.4% after a 0.5% decline at the first of the year.
Core CPI, which excludes energy, food, alcohol and tobacco, last month increased 3.2% y/y, a tenth above both forecasts and the previous reading.
ONS chief economist Grant Fitzner said clothing prices provided the largest upward contribution, rising this month but falling a year earlier. However, this was partly offset by declines in the cost of petrol, reflecting data collected before the escalation of the Middle East conflict and the subsequent rise in crude prices. He added that promotional activity drove a fall in alcohol prices, while broadly unchanged food prices — compared with modest increases a year ago — also exerted downward pressure.
Food and non-alcoholic beverage prices rose 3.3% in the 12 months to February, easing from 3.6% in January and marking the lowest annual rate since March 2025.
Fitzner also noted that February’s release incorporated supermarket scanner data for the first time, replacing many physically collected prices and improving the accuracy of price measurement.
The firmness in core inflation reflected resilient services CPI, driven in part by increases in private rents, travel and accommodation costs, according to Deutsche Bank’s Sanjay Raja. “The good news is that the starting point for the Monetary Policy Committee looks broadly as it set out in the March decision. The bad news? Inflation is poised for another unwelcome detour.”
Output prices rose 1.7% y/y in February, slowing from 2.5% previously, while falling 0.5% m/m after a flat January reading. Food product output prices increased 2.4% y/y, down from 3.2%, while the largest downward contribution came from coke and refined petroleum products. Prices in that category fell 8.6% on the year.
Input prices rose 0.5% y/y, up slightly from 0.4%, while monthly input inflation accelerated to 0.8% from 0.4%.
However, the data is already outdated. February’s figures do not capture the sharp rise in energy costs following the escalation of the conflict in the Middle East.
At the start of March, US President Donald Trump, alongside Israel’s Benjamin Netanyahu, announced military action against Iran, targeting key sites including Kharg Island, a critical oil export hub. In response, Iran’s Islamic Revolutionary Guard Corps has launched retaliatory strikes across the region, including missile and drone attacks on energy infrastructure in neighbouring countries hosting US bases.
The resulting surge in oil and gas prices is expected to feed through quickly into inflation.
On Tuesday, UK finance minister Rachel Reeves said the government stood ready to support vulnerable households facing rising energy costs, though she stopped short of detailing specific measures.
The Bank of England last week voted unanimously to hold its benchmark interest rate at 3.75%, citing heightened geopolitical uncertainty. Policymakers warned that rising energy prices would likely lift household utility bills and increase cost pressures for businesses.
“A return to the bank’s 2% target now looks like a distant memory,” said Deutsche’s Raja. “Pump prices have risen by nearly 7% in March and are likely to rise by a similar amount in April. July dual-fuel bills are poised to increase by close to 30%. Markets no longer expect a swift decline in energy prices, and spillovers into the broader CPI basket are becoming more likely.”
ING’s James Smith said the BoE is more likely to remain on hold than resume tightening, even with inflation at or above 3%. “At current energy prices, UK inflation is set to peak between 3.5–4% this autumn — around one percentage point higher than we expected pre-war. That’s not a game-changer for a central bank that was close to cutting rates, but it does reinforce the case for an extended pause through 2026. Further energy shocks could still force a rethink, but that is not our base case.”