Inflation remains above Bank of England’s target before Iran war

UK inflation remained at three per cent in the year to February

Inflation in the year to February remained well above the Bank of England’s target rate in the final piece of price data covering the period before warfare in the Middle East erupted. The Office for National Statistics (ONS) disclosed that CPI inflation over the 12-month period stood at three per cent, holding steady from the previous month.

City economists anticipated inflation to remain at three per cent, matching the reading for the year leading up to January. Analysts are expected to be troubled by official figures demonstrating that inflation remained considerably above the Bank of England’s two per cent target, even before President Trump and Prime Minister Netanyahu launched strikes in Iran at the beginning of March.

Policymakers at the Bank of England may search for more nuanced indicators that inflation was moderating in data published on Wednesday prior to the war, as reported by City AM.

Services inflation, which can help gauge the impact of wage costs on firms, eased marginally to 4.3 per cent whilst core inflation, which excludes volatile food and energy items, stood at 3.2 per cent.

It is improbable, however, that Bank rate-setters will scrutinise the latest inflation figures too closely.

The Confederation of British Industry’s lead economist Martin Sartorius described the data as “old news” and suggested a return to the two per cent inflation target may only materialise next year.

Chancellor Rachel Reeves said the government’s approach to tackling inflation as “responsive and responsible” in the face of an “uncertain world”.

The Middle East conflict has resulted in the blockade of the Strait of Hormuz, the vital waterway responsible for approximately a fifth of global oil and gas supplies, along with fertilisers and essential chemicals.

The international benchmark for oil prices approached $120 per barrel at the height of the conflict, surging from roughly $68 prior to the war’s outbreak. The Brent Crude oil price remained above $100 during Tuesday’s trading session.

The UK natural gas futures price has rocketed by more than 80 per cent since hostilities began.

A sharp rise in energy prices across financial markets has already fed through into higher fuel costs at petrol stations, whilst Britons have been cautioned that the Ofgem price cap will reflect changes from July.

Prior to the war, the Bank of England indicated inflation would decline to its target rate from April. It has now adjusted inflation projections for next month upwards to three per cent, with additional increases anticipated in following months.

During its meeting last week, the Bank’s Monetary Policy Committee cautioned it remained “ready to act” should prices surge higher.

In a speech on Tuesday, chief economist Huw Pill said uncertainty could not serve as an “excuse” as the Bank concentrated on restoring price stability.

Economists at Wall Street banks have suggested that interest rates could be raised twice amid concerns that households and businesses were more vulnerable to cost of living pressures.

WPI Strategy economist Martin Beck indicated it was “more likely” that the MPC would “sit tight” and maintain interest rates for an extended period.