Summary
- The latest UK inflation figures will be announced tomorrow (22 April).
- UK inflation stayed at 3% in February; experts had expected it to fall from there.
- However, the conflict in Iran is expected to have reversed this trend.
- Some forecasters expect CPI inflation to have risen to 3.3% in the year to March.
| What is inflation? | UK inflation forecast | Inflation basket of goods | CPI release dates |
How high could UK inflation go this year?
The oil shock following the Iran war will almost certainly have pushed the UK’s rate of CPI inflation up in the year to March. The bigger question in many respects is how high the metric could reach later this year.
Former Bank of England rate-setter Michael Saunders, now senior economic adviser at advisory firm Oxford Economics, thinks CPI inflation could reach as high as 4.5% by the end of the year – and that even if the oil crisis resolves, the impact could be long-lasting.
“Because of uncertainties regarding the extent to which higher inflation will affect inflation expectations and pay growth, the scale of any second-round effects is unlikely to be clear until early next year,” said Saunders.
See our UK inflation forecast explainer for more detail on where inflation is expected to go next.
Why does inflation matter to you?
Inflation impacts your money in two different ways – one of them direct, the other less so.
The direct impact is the amount that you pay for things. As far as the March data goes, you’ve already felt this impact; if you noticed goods (especially petrol) being a little more expensive over recent weeks, or your budget didn’t stretch as far as normal, that’s because of inflation.
But it has a less direct, and longer-lasting impact. Higher inflation is a warning sign for central bankers, and the only lever they can pull to bring it down is to increase interest rates.
Higher interest rates mean that mortgage rates increase, as do interest rates on any kind of debt you hold. On the other hand, it could see the interest that you earn on your cash savings increase.
What do analysts expect happened to UK inflation in March?
March is a key month in the recent history of UK inflation.
Up until February, inflation had been on a downward trend. There were some bumps in the road, but the expectations from most commentators and the Bank of England’s own forecasters was that inflation was trending down towards the 2% target – perhaps as soon as the second quarter of 2026.
The Iran conflict has drastically changed the picture. With the Strait of Hormuz effectively closed since the beginning of March, oil prices have risen, putting pressure on the input costs for almost every kind of business.
“March's CPI figures are expected to show inflation edging up, reflecting the impact of geopolitical tensions on oil and commodity prices, which feed through into energy, fuel and food costs for households,” said Harriet Guevara, chief savings officer at Nottingham Building Society.
Analysts at Bank of America and Deutsche Bank predict a 3.3% rate of annual CPI inflation.
What is CPI inflation?
Inflation measures the pace at which prices increase. It is calculated by assessing changes in a core, representative basket of goods and services that economists deem representative of the UK economy as a whole.
The core measure of inflation – and the one we’ll be referring to here unless specified – is the annual change in the Consumer Prices Index (CPI). There are other measures of inflation which we’ll refer to, but CPI is the metric that is most closely followed, largely because it is the easiest metric with which to make international comparisons.
The Bank of England – like most central banks – targets a 2% annual CPI inflation rate. This is generally viewed as healthy by economists, representing an economy that is growing but without prices increasing too fast for household spending power to keep up.
When is the March UK inflation data released?
The Office for National Statistics (ONS) will release the latest UK inflation figures – covering the month of March – tomorrow morning (22 April) at 7am.
Inflation statistics are always retrospective; they cover the month before the one in which they are released.
Last month, the inflation release for February showed that CPI inflation held steady at 3% over the preceding year. Significantly, this covered the period up until the outbreak of the conflict in Iran.
It is almost a given that inflation will have risen during March as a result of the war. The most important question is how significant the increase will prove to have been.