UK inflation remained unchanged at 3% in the year to February, offering a brief period of stability before economists expect a renewed surge in price pressures driven by the Middle East conflict.

Figures from the Office for National Statistics (ONS) show that annual inflation held steady following 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-Israel conflict with Iran,  an event that has already triggered sharp increases in global energy prices and is widely expected to feed through into higher inflation in the months ahead.

The main upward pressure on inflation in February came from clothing and footwear, where prices rose by 0.9% over the year. This marked a reversal from the previous month, when clothing prices had shown no increase.

ONS chief economist Grant Fitzner said the rise reflected typical seasonal pricing dynamics, but also highlighted the underlying volatility within the inflation basket.

“At the same time, falling petrol costs and discounted alcohol helped offset some of these increases,” he added, noting that alcohol and tobacco inflation reached its lowest level since early 2022.

While fuel costs helped keep inflation in check in February, that trend has already begun to reverse.

The ONS reported that petrol prices were at their lowest level since June 2021 during the data collection period, with average prices around 131.6p per litre. Since then, wholesale oil prices have surged, pushing pump prices significantly higher.

The price of crude oil has risen sharply following 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 for transport but also for manufacturing, food production and leisure services as businesses pass on higher input costs.

For many companies, the impact is already being felt.

James Palmer, who runs a bus company in Essex, said fuel costs have risen dramatically in recent weeks, creating uncertainty and forcing difficult decisions.

“Three weeks ago we were paying around £1.21 per litre, now it’s closer to £1.86,” he said, highlighting the speed of the increase. Combined with rising wage costs, he warned that price rises for customers are becoming unavoidable.

“It’s the unpredictability that’s worrying,” he added. “We don’t want to let people down, but we may have no choice.”

Economists expect inflation to rise significantly over the course of 2026, with some forecasts suggesting it could peak at around 4.6% if energy prices remain elevated.

This would mark a reversal from the recent trend of easing inflation and could complicate monetary policy decisions for the Bank of England, which had previously been expected to begin cutting interest rates.

Instead, markets are now pricing in the possibility of further rate increases to contain inflation, a move that would place additional pressure on households and businesses.

The inflation data also comes as wage growth shows signs of slowing. Earnings excluding bonuses rose by 3.8% annually,  still ahead of inflation for now, but vulnerable to being overtaken if price growth accelerates.

A renewed squeeze on real incomes could weigh heavily on consumer spending, further slowing economic growth.

Chancellor Rachel Reeves said the government is taking steps to ease the cost of living, including measures to stabilise food prices and improve long-term energy security.

However, economists warn that global factors, particularly energy markets,  may limit the effectiveness of domestic policy interventions.

The February inflation figure represents a moment of calm before what could be another period of turbulence.

With energy prices rising, supply chains under strain and interest rate expectations shifting, the UK economy faces a delicate balancing act,  one where inflation, growth and living standards are all tightly interconnected.

For now, inflation may be stable. But the forces shaping its next move are already in motion.

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LONDON — The FTSE 100 climbed more than 1% in early trading Wednesday as investors weighed signs of potential de-escalation in the Middle East conflict against lingering geopolitical risks and steady UK inflation data. The blue-chip index rose as high as 10,077.21 points before pulling back slightly, trading around 10,069.49, up 104.33 points or 1.05% from Tuesday’s close of 9,965.16.

The benchmark opened near 9,965 and quickly gained momentum on hopes that diplomatic efforts could ease tensions following recent U.S. and Israeli actions in the region. Brent crude prices remained elevated near $100 a barrel but showed some moderation, providing mixed signals for energy-heavy constituents. The pound sterling traded modestly lower against the dollar, offering slight support to multinational exporters in the index.

Wednesday’s rebound followed a volatile period for UK equities. The FTSE 100 closed Tuesday at 9,965.16, up 0.72% on the day but still reflecting broader caution after a sharp 2.35% drop on March 20 triggered by escalating conflict fears. The index has shed about 7.78% over the past month yet remains up roughly 15% from a year earlier, with a 52-week range stretching from 7,679.48 to 10,934.94.

Analysts attributed the early lift to bargain hunting after recent sell-offs and anticipation of corporate earnings. Several FTSE 100 companies issued updates Wednesday, including notices of annual general meetings, financial presentations and subsidiary divestitures. Diageo’s announcement of a U.S. subsidiary divestiture in its Ready-to-Drink business and other routine filings added to the flow of company news without major surprises.

Energy stocks, which have been sensitive to oil price swings, showed mixed performance in early deals. Shell and BP, significant index weights, faced pressure in recent sessions from fluctuating crude values but offered some support on any signs of supply disruption risks persisting. Mining names and financials also contributed to the positive tone, with HSBC and other banks benefiting from a broader risk-on sentiment.

Broader European markets pointed to similar gains, with futures suggesting a positive open across the continent. U.S. stock futures were little changed overnight, while Asian markets closed mixed after weighing the same geopolitical developments.

UK inflation held steady at 3% in the latest reading, coming in as expected and providing some comfort to the Bank of England ahead of its next policy decision. Markets continue to price in the possibility of rate cuts later in the year, though sticky services inflation and energy costs tied to global events could delay easing.

The FTSE 100’s composition — heavy in financials, energy, consumer staples and healthcare — leaves it particularly exposed to global commodity cycles and international trade dynamics. Recent quarterly index review changes took effect earlier in March, with IG Group Holdings and Lion Finance Group joining the blue-chip benchmark while Easyjet and Hikma Pharmaceuticals exited.

Volume on Tuesday reached about 1.19 billion shares as the index recovered from intraday lows near 9,839.20. Wednesday’s early session saw continued healthy turnover as traders repositioned portfolios.

Among individual movers, housebuilders and retailers have been volatile in recent weeks amid domestic economic concerns, while defense stocks like BAE Systems and Rolls-Royce experienced swings tied to geopolitical headlines. Consumer goods giants such as Unilever and Reckitt Benckiser often provide defensive ballast during uncertain times.

Longer-term, the FTSE 100 has delivered solid returns for income-focused investors, boasting a dividend yield around 2.81%. Its net market capitalization stands at approximately £2.63 trillion, underscoring its role as a bellwether for UK plc despite ongoing debates about its international bias versus domestic growth exposure.

Economists note that prolonged Middle East instability could stoke inflation through higher energy prices, potentially complicating the Bank of England’s path to lower rates. Conversely, any meaningful de-escalation would likely boost risk assets and support the index’s multinational heavyweights.

Looking ahead, investors will monitor upcoming earnings from major constituents, fresh inflation and employment data, and any developments from Washington, Tehran and Jerusalem. The next Bank of England meeting and U.S. Federal Reserve signals will also influence sentiment.

The FTSE 250, more domestically oriented, often moves independently of its larger sibling. Recent sessions have seen the mid-cap index display similar caution amid housing and consumer spending worries.

For retail investors, the current environment highlights the importance of diversification. Many use FTSE 100 trackers or income ETFs to gain broad exposure while collecting dividends that have historically helped weather volatility.

Market participants remain divided on near-term direction. Some strategists see value emerging after the recent pullback, citing attractive valuations in sectors like banking and mining. Others warn that unresolved geopolitical risks could trigger further downside, particularly if oil prices spike toward $110 or higher.

As trading progressed past the 9 a.m. GMT open, the index held most of its gains, trading comfortably above the 10,000 psychological level. Technical analysts noted potential resistance near recent highs around 10,100-10,200, with support clustered around 9,800-9,900.

The London Stock Exchange continues to operate smoothly despite global uncertainties, with regulatory filings flowing as normal. Wednesday’s corporate announcements included routine items such as transaction in own shares and directorate changes across several listed firms.

In summary, the FTSE 100’s early advance on Wednesday reflected tentative optimism that the worst of the Middle East escalation may be contained, even as caution prevailed. With oil prices elevated and inflation steady, the index’s performance will hinge on how quickly global tensions ease and whether corporate Britain can deliver resilient earnings.

The benchmark’s resilience in the face of external shocks underscores its diversified nature, though volatility is likely to persist until clearer signals emerge from both the geopolitical arena and domestic economic indicators.

Indian equities are navigating a volatile phase as geopolitical tensions trigger a sharp correction. With markets down nearly 8–9% since the war began—and about 15% from their peak—valuations are beginning to look appealing. Yet, uncertainty around oil prices and the duration of the conflict continues to cloud the outlook.

Market expert Aman Chowhan from Abakkus Asset Manager believes the correction has opened up opportunities, albeit with caution.

“Yes, prices are definitely attractive… otherwise we would have been in much better shape. Hopefully, when the war ends, oil will be back to 60–70, giving a reason to look at equity and maybe another 5–10% move over the next 12 months.”

Oil Remains the Key Risk

The biggest variable, according to Chowhan, is crude oil. If prices stay elevated, the broader market could face deeper challenges. “If the war prolongs… nine out of ten companies would be negatively impacted. Trade deficit goes haywire, currency goes haywire… we can see another 5% to 10% shaved out of Nifty.”

Cost Pressures Already Visible
Even before earnings fully reflect the impact, companies are beginning to feel the heat from rising input costs. “Plastic prices are up 30–40%… some companies are feeling the pinch. The full impact will be visible in the first quarter.”
Few Safe Havens
The correction has been broad-based, and sectoral immunity is limited. “Pharma and IT are relatively less impacted… but IT has its own challenges. Banking also gets indirectly impacted… not much remains unimpacted.”
Strategy: Focus on Valuation, Not Size
With smallcaps falling more sharply than largecaps, investors face a familiar dilemma. Chowhan suggests focusing on fundamentals over market cap. “High PE stocks have not performed… the bounce will happen in reasonably valued stocks. Over 3–5 years, mid and smallcaps can give better returns if one can handle volatility.”

Where Value is Emerging
Despite near-term disruptions, select sectors are starting to offer value. “Engineering and EPC look attractive… IT midcaps valuations are looking good. Financials are fairly priced and can still deliver 20–30% returns.”

Private Banks Still Preferred
Within financials, the preference remains clear. “Preference is towards private banks… and selectively non-fund-based financials like NBFCs, broking and AMC companies.”

The Bottom Line
While valuations are turning favourable, markets remain hostage to global developments—especially oil. Investors may find opportunities, but discipline, stock selection, and a long-term perspective will be critical in navigating this uncertain phase.