U.K. inflation remained unchanged at 3% for the year through February, providing a brief period of stability before economists expect price pressures to rise again due to the Middle East conflict.
Figures from the Office for National Statistics (ONS) show annual inflation remained stable after months of gradual decline, with rising clothing prices offset by lower fuel and alcohol costs.
However, the data was collected before the escalation of the US-Israeli conflict with Iran, an event that has already caused a sharp rise in global energy prices and is widely expected to lead to higher inflation in the coming months.
The biggest upward pressure on inflation in February came from clothing and footwear, where prices rose 0.9% for the year. This marked a reversal from the previous month when clothing prices did not record an increase.
ONS chief economist Grant Fitzner said the rise reflected typical seasonal price dynamics but also pointed to underlying volatility within the inflation basket.
“At the same time, falling gasoline prices and discounted alcohol have helped offset some of these increases,” he added, noting that alcohol and tobacco inflation have reached their lowest levels since early 2022.
While fuel costs helped keep inflation under control in February, that trend has already begun to reverse.
The ONS reported that petrol prices during the data collection period were at their lowest level since June 2021, with average prices at around 131.6 pence per liter. Since then, wholesale oil prices have risen sharply, driving up pump prices significantly.
Crude oil prices have risen sharply due to disruptions to global supply chains and shipping routes, particularly through the Strait of Hormuz – a key artery for global energy markets.
This shift is expected to have a cascading effect across the economy, increasing costs not only of transportation but also of manufacturing, food production and recreational services as companies pass on higher input costs.
The effects are already noticeable for many companies.
James Palmer, who runs a bus company in Essex, said fuel costs had risen dramatically in recent weeks, creating uncertainty and requiring difficult decisions.
“Three weeks ago we were paying about £1.21 a liter, now it’s closer to £1.86,” he said, citing the speed of the rise. In connection with rising labor costs, price increases for customers are unavoidable, he warned.
“It is the unpredictability that is worrying,” he added. “We don’t want to let people down, but we may have no other choice.”
Economists expect inflation to rise significantly over the course of 2026. Some forecasts suggest it could peak at around 4.6% if energy prices remain high.
This would mark a reversal of the recent trend of moderating inflation and could complicate monetary policy decisions for the Bank of England, which had previously been expected to start cutting interest rates.
Instead, markets are now pricing in the possibility of further interest rate hikes to curb inflation, which would put additional pressure on households and businesses.
The inflation data also comes at a time when wage growth is showing signs of slowing. Earnings excluding bonuses rose 3.8% annually, still above inflation for now, but could be overtaken if price growth accelerates.
A further decline in real incomes could weigh heavily on consumer spending and further slow economic growth.
Chancellor Rachel Reeves said the government was taking steps to reduce the cost of living, including measures to stabilize food prices and improve long-term energy security.
But economists warn that global factors, particularly energy markets, could limit the effectiveness of domestic policy interventions.
February’s inflation numbers represent a moment of calm before what could be another period of turbulence.
With rising energy prices, strained supply chains and changing interest rate expectations, the UK economy faces a delicate balancing act where inflation, growth and living standards are closely linked.
Inflation is likely to remain stable for the time being. But the forces shaping the next step are already in motion.
