UK inflation remained steady at 3% in the 12 months to February, in line with analyst expectations but above the Bank of England’s 2% target.
Clothing made the largest upward contribution to the monthly change, while motor fuels made the largest, offsetting downward contribution.
However, the data was collected before the start of the war in the Middle East, which has already impacted energy and fuel prices.
Oil sat around $70 throughout February but has traded above $90 for most of March, while European gas prices are around 60% higher than their February levels.
Daniel Casali, chief investment strategist at Evelyn Partners, said: “The inflation reading for February is already an outdated snapshot of UK price dynamics, given that it predates a sharp rise in global energy prices triggered by the escalation of conflict in the Middle East at the end of last month.
“What we do learn today is that this mounting external pressure on inflation in the coming months is coming on the back of domestic inflation pressures that were already firming before that oil shock hit.”
Charlotte Kennedy, chartered financial planner at Rathbones, said: “The latest reading shows that slower rises in petrol and diesel prices had been helping to keep inflation in check. But that trend has now gone into reverse.
“Rising tensions in the Middle East are driving up oil prices, and that’s beginning to feed through to forecourts. If sustained, the impact won’t stop there. Oil is a key input across the economy, so higher prices could ripple through supply chains – pushing up the cost of producing and transporting goods, including everyday essentials like food.”
Lindsay James, investment strategist at Quilter, warned that February’s reading is likely to represent the low point for UK inflation for some time.
“Normally the Bank of England looks through energy volatility, but the severity of the current shock has forced policymakers to signal they are ready to act if necessary. Hopes of rate cuts this year have largely evaporated, and several hikes can no longer be ruled out.
“The real question now is how persistent this new inflationary pulse becomes. In the short term the impact may be contained. But if elevated energy prices hold, they will flow through the EPC mechanism from July and risk setting off second‑round effects across goods, services and higher wage demands.”
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