Market News

The UK inflation rate held steady at 3% in February, before Donald Trump’s Iran war drove up global energy costs, threatening a renewed price jump.

Official figures showed the consumer prices index remained at the same level as the previous month, in line with economists’ expectations but still well above the government’s 2% target.

The annual rate of food inflation fell slightly, driven by drops in olive oil, flour and pizza, but the Food and Drink Federation warned this was likely to be “the calm before the storm”.

The outlook for inflation has shifted dramatically since the onset of the Middle East conflict, which has sent oil and gas prices soaring after the effective closure of the strait of Hormuz, an important shipping route.

As recently as last month, the Bank of England was forecasting CPI inflation to fall to the 2% target in the second quarter of the year, opening the way to more interest rate cuts.

However, at last week’s monetary policy committee meeting, rates were left on hold, and markets now expect the next move to be up.

Announcing the unchanged 3% figure for February, the Office for National Statistics (ONS) said higher inflation for some products, including clothing, had been offset by declining prices elsewhere.

Grant Fitzner, the ONS chief economist, said: “The largest upwards driver was the price of clothing, which rose this month but fell a year ago.

“This was offset by falls in petrol costs, with prices collected before the start of the conflict in the Middle East and subsequent rise in crude oil prices.”

Petrol prices have increased significantly since the war began, with the RAC saying at the end of last week that a litre of unleaded was up by 12p or 9%.

The ONS cited declining prices for alcoholic drinks and tobacco, which fell 0.1% on the month in February, as another downward pressure on inflation.

February also brought another welcome moderation in annual food inflation, down from 3.6% in January to 3.3%, the lowest rate since March 2025. However, experts have warned that the higher cost of fertiliser as a result of the supply blockages in the Gulf could lead to food costs rising again in the coming months.

Karen Betts, the chief executive of the Food and Drink Federation, said: “While food inflation fell slightly in February 2026, I am concerned that this is the calm before the storm.

“The longer the conflict in the Middle East goes on, the bigger its impact will be on food prices. With food and drink price inflation already running above historical averages, heightened energy, maritime fuel and fertiliser costs will put further pressure on prices.”

The ONS said core inflation, which excludes volatile factors including food and fuel, was higher in February than a month earlier, at 3.2%, up from 3.1% in January.

That may underline fears among hawkish policymakers at the Bank of England that price rises could spread beyond the sectors affected by the Iran crisis into the wider economy. The Bank’s monetary policy committee next meets to set rates on 30 April.

The chancellor, Rachel Reeves, said: “In an uncertain world we have the right economic plan … We’re taking £150 off energy bills and providing targeted support for those facing higher heating oil costs.

“We’re also acting to protect people from unfair price rises if they occur, bring down food prices at the till, and cut red tape.”

Reeves told MPs on Tuesday she was reviewing the options for providing targeted support to households that could face significantly higher utility bills in the coming months as a result of the conflict, now in its fourth week.