British consumer price inflation held steady at 3.0% in February, matching January’s rate, as official data revealed on Wednesday. This stability comes just before an anticipated increase driven by escalating tensions in the Middle East, which are expected to push prices upward.
The Office for National Statistics noted that lower petrol prices in February helped balance out rising clothing costs. However, this temporary relief is likely to fade, given that oil prices have surged by approximately 50% compared to a month ago. Luke Bartholomew, deputy chief economist at Aberdeen fund managers, described the current inflation figures as a snapshot from before the Iran conflict intensified.
Prior to the U.S.-Israeli strike on Iran at the end of February, the Bank of England (BoE) had projected inflation would decline to near its 2% target by April, coinciding with adjustments to regulated household energy bills and other prices. In a significant development last week, the BoE sharply revised its forecast, now expecting inflation to rise toward 3.5% by mid-year.
Meanwhile, a survey released Tuesday by U.S. bank Citi revealed that inflation expectations among the British public for the upcoming year have jumped to 5.4% from 3.3%, marking the largest monthly increase in over two decades. This surge adds complexity to the BoE’s efforts to manage inflation.
Although most household energy tariffs remain capped for the moment, new pricing is scheduled to take effect in July. Manufacturers have already reported the steepest rise in costs since 1992, which could soon translate into higher consumer prices. Financial markets on Wednesday anticipated two or three quarter-point interest rate hikes by the BoE this year; however, many economists believe the central bank may hold rates steady due to growth challenges posed by rising energy expenses. BoE Governor Andrew Bailey recently cautioned against assuming any definitive rate increases.
Data released Wednesday also showed that services price inflation—a key indicator the BoE monitors for long-term inflation trends—fell to 4.2% in February from 4.4% in January. This marks the lowest level since March 2022 and slightly underperformed economists’ expectations of 4.3%. The decrease was driven by lower inflation in sectors such as restaurants, cafes, and cultural event tickets.
Conversely, core inflation, which excludes volatile items like food, energy, alcohol, and tobacco, edged up slightly to 3.2% from 3.1%, contrary to forecasts that it would remain unchanged. Zara Nokes, global market analyst at J.P. Morgan Asset Management, noted that this unexpected rise in core inflation signals persistent price pressures even before factoring in the recent energy price surge.
Among major advanced economies, the UK has the highest inflation rate, partly due to its dependence on natural gas for electricity generation and heating, making it susceptible to price shocks. Prime Minister Keir Starmer’s administration has introduced measures to curb living cost increases. Finance Minister Rachel Reeves stated on Tuesday that any household energy subsidies this year would be more narrowly focused than during the 2022 gas price crisis.
Following the inflation data release, Reeves emphasized upcoming government initiatives set to reduce certain fixed household energy costs starting next month and affirmed the government’s commitment to protecting citizens from unfair price hikes if they arise.
British inflation peaked at 11.1% in October 2022, the highest since 1981, and has seldom approached the BoE’s 2% target over the past five years.
