UK inflation stayed at 3 per cent in February, the latest figures show – though with the Iran war still upending the flow of oil around the world, the UK is set to see prices head back upwards.
Oil has risen from around $70 before the war starting to just shy of $100 now, though has spiked well above that milestone on more than one occasion over the past few weeks.
That is expected to feed through into not just higher energy bills but also transport and production costs going up, pushing inflation back in the opposite direction. Prior to the war starting, the Bank of England had signalled inflation was on course to reach the government-set target of 2 per cent by spring.
Meanwhile, the Institute of Grocery Distribution (IGD) has warned food inflation could surpass 8 per cent by June of this year, if “disruption to global energy markets persists”.
“Firms likely hiked prices by less in February 2026 than February 2025, which is when firms started to increase prices in response to higher employer taxes introduced in the 2024 Autumn Budget. “Motor fuels inflation will also drop sharply, but February’s inflation data will feel redundant as pump prices have already started surging in March due to the conflict in Iran,” said Thomas Pugh, chief economist at RSM UK.
Consumer Prices Index (CPI) inflation was already at 3 per cent for the 12 months to January, which marked the lowest level of inflation in the UK since March of 2025. However, despite the overall level remaining the same for the year to February, there were some differences in individual areas of goods and services.
The 12-month cost of clothing and footwear rose to its highest point since March of last year, while food and non-alcoholic beverages slowed compared to January.
Ironically, so too did transport costs – that is set for a sharp reversal though, when the next set of data comes through.
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“While the Bank of England has signalled a cautious and data dependent approach to monetary policy, resulting in a hold at 3.75 per cent last week, financial markets have already reacted sharply to the changing global outlook,” noted Charlie Ambler, partner at wealth managers Saltus.
“Investors are now pricing in the possibility of multiple interest rate increases this year, with some expectations pointing to as many as four rises before the end of 2026. The gap between market expectations and the Bank’s own guidance highlights just how uncertain the inflation outlook has become.”
Mortgage costs have shot up recently as traders bet on increasing interest rates, sending swap rates higher which impact the level at which mortgage products are set by lenders. While actual interest rates haven’t increased, it has still meant all the best deals being pulled – no sub-4 per cent mortgages remain on the market from the biggest lenders.
“Following recent news that government borrowing costs were higher than anticipated, there is significant work needed to encourage and support growth in the housing market over the coming months,” said Nathan Emerson, CEO of Propertymark.
“We have moved from a sense of optimism to a feeling of justified concern in a short amount of time. While caution from the Bank of England will be necessary to help further slow inflation, it is hoped that we will eventually see more favourable mortgage rates appear across the lending spectrum when realistic.”
Meanwhile, households struggling under already high prices who are concerned about further rises in energy bills or their overall finances are urged to get in touch with organisations who can help.
Grace Brownfield, head of debt advice communications at National Debtline, said: “Inflation holding at 3 per cent will continue to worry households already struggling to get by, with many fearing worse is to come as the impact of the war in the Middle East hits prices.
“Already, two in every five people who contact us at National Debtline are behind on their energy bills. If prices go up in July, as is currently expected, we could see more people pushed into debt, and having to make impossible choices just to stay afloat. The Government is right to be looking now at what support options may be required and how to make sure these reach people in need.
“We urge anyone worried about their finances to seek free, impartial advice as early as possible. Support is available and reaching out before things reach crisis point can make a real difference.”
