UK Inflation Rises to 3.3% as Energy Costs Surge

Figures released by the Office for National Statistics showed the annual consumer price index increased from 3% in February, in line with market expectations.

The rise was largely attributed to an 8.7% monthly increase in motor fuel prices, marking the steepest jump since 2022. Higher energy costs have also pushed up airfares and food prices, adding to broader cost-of-living pressures.

UK Treasury chief Rachel Reeves said the conflict, while external, is having a direct impact on households and businesses through rising bills.

Market expectations for monetary policy have shifted following the data release. Investors had previously anticipated that the Bank of England would begin cutting interest rates in the coming weeks. However, the latest inflation figures have made a near-term rate reduction unlikely.

Analysts said inflationary pressures are being driven primarily by supply-side disruptions linked to energy markets rather than domestic demand.

Lindsay James, an investment strategist at Quilter, said the data indicates that price pressures are re-accelerating after a period of easing earlier this year.

The inflation increase comes as the UK economy shows signs of slowing. Labour market data indicates a decline in payrolled employment and a rise in economic inactivity, while wage growth has begun to moderate.

Economists warned that the combination of rising living costs and weaker income growth could further strain household finances.

The central bank now faces a more complex policy environment. Prior to the recent surge, inflation had been expected to move closer to the Bank’s 2% target, supporting a gradual easing of monetary policy.

However, with inflation projected to approach 4% in the coming months, policymakers are likely to adopt a cautious approach at their next meeting.

Some analysts have also questioned whether interest rate adjustments alone can address the current inflation spike, given its origin in external supply disruptions rather than domestic demand pressures.

The Bank of England is expected to hold rates steady while monitoring the extent to which higher energy costs feed into wages and broader inflation trends.