UK Inflation Held at 3% in February Before Iran War Shock

UK inflation remained steady at 3% in February, the last reading before the conflict in Iran caused petrol costs to soar, threatening future household finances. Chancellor Rachel Reeves acknowledged significant economic challenges stemming from the Middle East conflict.

Key points

• Services inflation cooled slightly to 4.3%, the lowest level since March 2022.
• The primary upward driver for February inflation was the price of clothing.
• Oil prices rose from around $70 to just shy of $100 following the Iran war.
• Financial markets are pricing in up to four interest rate increases by the Bank of England before the end of 2026.
• The UK is leading efforts with partners to formulate a plan to reopen the Strait of Hormuz.

Why it matters

The February inflation data captures the economy just before the conflict's impact, which is now expected to push inflation higher, potentially leading the Bank of England to raise interest rates further.