UK inflation unchanged at 3% in February — the last print before the Iran war

The U.K. inflation rate stood firm at 3% in February, according to the latest figures from the Office for National Statistics (ONS) which marked the last reading before the start of the Iran war.

Economists polled by Reuters had expected the consumer price index to remain unchanged from the previous month.

Core inflation, which excludes energy, food, alcohol, and tobacco, stood at 3.2% in February, up from 3.1% in January.

“After last month's slowdown, annual inflation was unchanged. The largest upwards driver was the price of clothing, which rose this month but fell a year ago,” Grant Fitzner, the chief economist at ONS, commented on X.

“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,” he added.

The inflation print covers the final monthly period data before the U.S. and Israel launched airstrikes on Iran in late February, prompting retaliatory strikes by the Iranian Republic.

The was down 0.17% against the dollar at $1.3385 following the data release.

An ongoing and almost total block on the Strait of Hormuz, a vital maritime passage for oil and gas out of the Middle East, has sent global energy prices soaring. The U.K. is more exposed to rising energy prices due to its reliance on oil and gas imports, and lack of gas storage facilities.

The war has rewritten inflation expectations in the U.K., which was already experiencing a stubbornly high inflation rate compared to its neighbors on the continent. Nonetheless, the rate of price rises was expected to slow this year towards the Bank of England's 2% target, giving the central bank space to cut interest rates.

The war has put paid to expected cuts for now, however, with economists saying the BOE is likely to keep interest rates on hold at 3.75%, or to even hike again amid the revised inflationary outlook.

Last week, the Bank of England's Monetary Policy Committee voted “unanimously” keep its benchmark interest rate on hold, stating that “conflict in the Middle East has caused a significant increase in global energy and other commodity prices, which will affect households' fuel and utility prices and have indirect effects via businesses' costs.”

“Prior to this, there had been continued disinflation in domestic prices and wages. CPI inflation will be higher in the near term as a result of the new shock to the economy,” the BOE warned.

The BOE said its policymakers are “alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, the risk of which will be greater the longer higher energy prices persist.”