UK inflation rate rises to 3.3% as Iran war pushes prices higher

Good afternoon and welcome to MoneyWeek’s live coverage of the latest UK inflation data release.

Tomorrow morning, we’ll find out just how heavily the oil squeeze that followed the outbreak of the Iran conflict pushed up UK prices.

Follow us here today for rolling preview and analysis.

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.

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.

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.

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.

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.

Thanks for following our preview coverage of tomorrow's UK interest rates decision this afternoon. We're pausing live coverage for now, but join us from 7am tomorrow as we bring you live coverage of the inflation figures from their release.

Good morning and welcome back to our live coverage of the inflation data for March 2026. The Office for National Statistics (ONS) will release the figures very shortly.

UK inflation rises by 3.3%

The Consumer Prices Index (CPI) rose by 3.3% in the 12 months to March 2026 – up from 3% in the year to February. This data covers the first month since the conflict in the Middle East began on 28 February.

What drove the UK inflation rate rise?

On a monthly basis, CPI rose by 0.7% in March 2026 – up from 0.3% the year before.

The Consumer Prices Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.4% in the 12 months to March 2026, up from 3.2% in the 12 months to February. On a monthly basis, CPIH rose by 0.6% in March 2026, compared with a rise of 0.3% in March 2025.

Motor fuels was the main driver of the monthly change in the annual CPIH and CPI rates, the ONS said. Falling prices in clothing partially offset the rise.

Rachel Reeves: “Our economic plan is the right one”

Chancellor Rachel Reeves has responded to the latest inflation data, insisting the government’s economic plan has put them in a stronger position to help families as the impact of the war in Iran affects the UK economy.

“This is not our war, but it is pushing up bills for families and businesses. That’s why it’s my number one priority to keep costs down,” she said.

"Our economic plan is the right one and has put us in a stronger position to support families in the face of this new crisis.

“We’ve taken £117 off energy bills, frozen rail fares and protected motorists with the fuel duty freeze. 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.”

Transport drives UK inflation in March 2026

Transport, principally motor fuels, made the largest contribution to the increase in CPI annual inflation in March.

Housing and household services prices also accelerated as did food and non-alcoholic beverages, and recreation and culture prices.

The increase in the inflation rate was partially offset by a fall in clothing and footwear prices.

How have petrol prices changed?

Fuel prices have shot up in recent weeks, after the US and Israel launched strikes on Iran on 28 February. Wholesale oil prices increased after Iran shut the Strait of Hormuz, a narrow waterway between Iran and Oman through which 20% of the world's oil is transported. As petrol and diesel are made by enriching crude oil, drivers saw prices at the pump surge.

The average price of a litre of petrol has now fallen back slightly to 157p, according to RAC fuel watch on 21 April, but it’s still 24.7p per litre more than before the Iran war began. On 14 April, it had risen to 25.5p more than before the conflict. The average price of a litre of diesel was 190p a litre on 21 April – 47.8p higher than before the conflict, but slightly less than the 49.2p difference on 14 April.

The price of a litre of petrol is now 24p more expensive than a year ago, according to analysis by roadside assistance provider, The AA. It means drivers are now paying £13.20 more to fill a typical 55-litre petrol tank compared to this time last year.

Signs of living costs rising

While drivers may have noticed the price of fuel rising when they visited the pumps since the war began, today’s inflation data shows how prices of goods and services have changed in March.

“These are the first flickers of the Middle East conflict heating up everyday costs, with volatile oil and gas market pricing hitting forecourts,” Susannah Streeter, chief investment strategist, Wealth Club said.

“There’s likely to be further flare-ups on the way, especially if a longer-term resolution isn’t agreed.”

The renewed climb in fuel prices puts households at risk of squeezed budgets, Streeter said.

“Shoppers have turned cautious, and it seems retailers have had to discount to shift stock, with prices for clothing and footwear declining sharply month on month. They dipped by 0.8% in the 12 months to March 2026 compared with a rise of 0.9% in the 12 months to February.

“It was the lowest recorded annual rate for March since 2021 when prices were hit by the COVID-19 pandemic. Clearly consumers are tightening their belts as another cost-of-living crisis arrives.”

How do you feel about the cost of living?

Inflation affects people in different ways – as people have different spending habits, your personal inflation rate can differ to the national inflation rate.

For instance, motorists who need to regularly fill up their car with fuel will notice their transport spending increasing more than people who tend to walk everywhere.

How are you feeling about the rising cost of living?

What does the UK inflation rate rise mean for savers?

The average savings rate is currently 3.46%, according to money comparison website Moneyfactscompare.co.uk. This is higher than the latest inflation rate of 3.3%, meaning savers can get real returns on their cash – but it’s important to shop around.

The best easy access savings account on the market right now pays 4.50%. This is the Chase Saver with boosted rate – it includes a 2.25% AER bonus rate that's fixed for 12 months. The underlying variable rate is 2.25%.

There are currently 1,582 inflation-beating savings accounts, including 139 easy access, 131 notice accounts, 138 variable rate ISAs, 387 fixed rate ISAs and 787 fixed rate bonds.

Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said: “During times of uncertainty, some savers may place higher value on flexibility. Easy access accounts can be useful to help manage monthly volatility, giving savers the freedom to respond to unexpected costs."

Savers face a "tricky balancing act" when choosing between a fixed or variable rate account, Eastell said. "While they may be able to enjoy more competitive returns in the short-term, inflation will quickly catch up, eroding their hard-earned cash. In any case it’s crucial savers shop around for deals that pay over 3.3% to ensure they aren’t left out of pocket.”

Is the UK heading for stagflation?

The latest UK inflation figures are a worry for policymakers given that they arrive alongside a weakening economic picture.

The International Monetary Fund (IMF) downgraded its forecast for UK economic growth last week, saying that the country would be hit harder by the fallout of the Middle East conflict than any of the other members of the G7 (a group of seven rich nations of which the UK is a member).

This combination of inflation and economic stagnation is often referred to as ‘stagflation’, and poses a major headache for rate-setters. Usually, the Bank of England would hike rates to combat higher inflation – but that risks exacerbating the weakening economic situation.

On the plus side, economic weakness could in itself prevent inflation getting too out of hand.

“Though rising services inflation will worry rate-setters as it suggests that the fallout from the Iran war is already intensifying underlying price pressures, the squeeze from a weakening economy should limit any second-round effects,” said Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales.

However, Thiru added that despite the extended ceasefire that has been announced, energy costs and food prices are likely to continue to rise and could lift UK inflation above 4% by the autumn.

Higher UK inflation could push mortgage rates higher

Despite the weakening economic situation in the UK, the Bank of England may veer towards hiking interest rates anyway if it deems the risks from runaway inflation to be too great.

“That would likely mean higher mortgage rates, adding to the cost pressures facing those looking for a home loan and putting further strain on borrowers coming to the end of cheaper fixed-rate mortgages,” said Charlotte Kennedy, Chartered Financial Planner at wealth manager Rathbones.

According to data from Moneyfacts, the UK’s average mortgage rate has risen from 5.50% to 5.71% since the previous inflation announcement.

“Homebuyers will need to evaluate their affordability because rates could stay higher for longer as the Bank of England tries to bring inflation back towards its target,” said Caitlyn Eastell, personal finance analyst at Moneyfacts.

How could higher UK inflation impact your investments?

While higher UK inflation is likely to lead to increased mortgage and savings rates, it is less straightforward to say how it could impact your investments – largely because different investments will respond differently to higher inflation.

Gilt yields are likely to rise, assuming that the Bank of England delays or reverses its cutting cycle in response to higher inflation, and this would likely feed through into higher bond yields.

But equities are a mixed bag. “UK equities, particularly consumer-facing sectors, face margin pressure from rising input costs,” said Lale Akoner, global market analyst at trading platform eToro.

“Conversely, energy and commodity-linked stocks should benefit from sustained oil strength,” Akoner added.

How will the Bank of England respond to higher inflation?

The Bank of England’s Monetary Policy Committee (MPC) faces a difficult decision when it next sets UK interest rates.

Given the twin challenges of a weakening economy (which would normally imply rate cuts) and rising inflation (which would normally imply rate hikes), it is far from clear what the MPC will decide.

“After the shocks of Covid and the Ukraine war, central bankers remain hypersensitive to anything that risks embedding another round of inflation,” said Rob Morgan, chief investment analyst at investment manager Charles Stanley Direct.

The next MPC meeting takes place next week, and its decision will be announced on 30 April.

“The BoE is expected to put interest rates cuts on the backburner once more,” said Morgan. “The MPC needs time to assess the impact and will no doubt resist jumping to any conclusions about how long the conflict lasts and the extent of any pass through to core inflation.”

Services inflation remains sticky

Most experts had expected an increase in goods inflation, which is a logical consequence of the Iran war pushing up oil prices.

Alarmingly, though, this was accompanied by a rise in services inflation from 4.3% in the 12 months to February to 4.5% in the 12 months to March.

Services inflation has been running persistently ahead of goods inflation since July 2023. This sticky services inflation has been a major upward driver of overall UK inflation throughout that time.

This was largely due to increased air fares, and according to Deutsche Bank’s chief UK economist Sanjay Raja the bank’s core services measures, which factor out some more volatile inputs, “remained broadly unchanged”.

Still, persistent services inflation compounds the headache faced by MPC rate-setters next week.

UK inflation: other metrics

So far today we’ve mostly discussed the headline consumer prices index CPI figure, which rose 3.3% in the year to March.

Some of the other key metrics from today’s release are:

• Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.4% in the 12 months to March 2026, up from 3.2% in the 12 months to February;
• Core CPIH (CPIH excluding energy, food, alcohol and tobacco) rose by 3.3% in the 12 months to March 2026, down from 3.4% in the 12 months to February;
• Core CPI (CPI excluding energy, food, alcohol and tobacco) rose by 3.1% in the 12 months to March 2026, down from 3.2% in the 12 months to February;
• On a monthly basis, CPI rose by 0.7% in March 2026, compared with a rise of 0.3% in March 2025;
• CPIH rose by 0.6% in the month to March 2026 (up from 0.3% in the month to March 2025), while core CPIH rose by 0.3% over the same period (down from 0.4% a year before).

Recap: UK inflation rose to 3.3% in year to March

Here’s a recap of this morning’s UK inflation headlines:

• CPI inflation rose to 3.3% in the 12 months to March;
• This was largely driven by increases in transportation costs, especially motor fuels – largely thanks to the impact of the war in the Middle East;
• Services inflation has remained sticky, rising from 4.3% in the 12 months to February to 4.5% in the 12 months to March;
• Higher inflation could prompt the Bank of England to slow its pace of rate cuts, or even raise interest rates – potentially leading to higher mortgage rates.

Thank you for following our coverage of today’s UK inflation data release. As expected, the Iran war has pushed up prices across the UK – how will policymakers react? We’ll find out at the next MPC meeting, which is taking place next week.

We’re ending today’s live coverage here, but keep an eye on the MoneyWeek website and subscribe for email updates as we bring you more inflation news and reaction following today’s release.