UK inflation increased to 3.3% in the year to March, up from 3% in February, according to the Office for National Statistics, with rising fuel costs a key factor behind the change.
The ONS said the increase was “largely due to increased fuel prices”, as petrol and diesel recorded their sharpest monthly rise in more than three years.
Motor fuel prices rose by 8.7% between February and March, while annual fuel inflation reached 4.9%, the highest level since early 2023.
The figures provide an early indication of how recent disruption to global energy markets is affecting the cost of living in the UK. Wholesale energy prices have risen since late February, amid conflict in the Middle East that has affected production and transport across the region.
Other factors also contributed to the increase. Airfares rose, partly reflecting the timing of Easter, while food prices continued to climb. Food inflation increased from 3.3% to 3.7% in the year to March, driven by higher prices for items including chocolate, confectionery, meat, fish and soft drinks.
ONS Chief Economist Grant Fitzner said:
“The monthly cost of both raw materials for businesses and goods leaving factories rose substantially, driven by higher crude oil and petrol prices.”
He added that “the only significant offset came from clothing costs, where prices rose by less than this time last year”.
Economists expect inflation to rise further in the coming months, with some forecasting a peak of between 3.5% and 4% later this year. While this would remain below the double digit levels seen in 2022, it would be above the Bank of England’s 2% target.
The outlook for food prices remains uncertain. The Food and Drink Federation has said food inflation could reach up to 10% by the end of the year, noting that increases in supply chain costs can take several months to appear in retail prices.
The rise in inflation has also affected expectations for interest rates. Earlier forecasts had suggested rates might fall this year, but continued price pressures have led to speculation that the Bank of England could hold rates steady or increase them. Its Monetary Policy Committee is due to meet next week, with the base rate currently at 3.75%.
Higher energy costs can contribute to inflation, while also reducing spending by households and businesses, creating a challenge for policymakers.
Chancellor Rachel Reeves said:
“This is not our war, but it is pushing up bills for families and businesses. That’s why it’s my number one priority to keep costs down.”
She added:
“Our economic plan is the right one and has put us in a stronger position to support families in the face of this new crisis.”
Reeves said the government would “protect people from unfair price rises if they occur to bring down food prices at the till”, and was working to strengthen long term energy security.
Shadow chancellor Sir Mel Stride said the conflict was contributing to higher inflation “but Labour’s choices have made everything worse and made our economy vulnerable”.
“Tax hikes, reckless spending and disastrous energy policies have left Britain exposed,” he said, calling for lower taxes, reduced benefits spending and increased North Sea drilling.
Liberal Democrat Treasury spokesperson Daisy Cooper said the situation had added to existing pressures on households.
“It’s only the Lib Dems with a real plan to protect people from Trumpflation and cut fuel prices, rail fares and bus prices, bringing down the cost of living and protecting British families,” she said.
Some economists have warned that further impacts from higher energy costs may still emerge. Adam Deasy, an economist at PwC UK, said:
“This is just the first wave of the energy shock, primarily showing up in higher prices at the pump.
“We are yet to see the knock-on impact of price pressures in downstream or byproducts to oil and gas, such as fertiliser, helium, plastics or metals.”
For some workers, rising fuel costs are already having a direct effect. Joe Pearson, a driving instructor in Shoreham-on-Sea told the BBC higher petrol prices are adding around £100 a month to his costs.
“When is this going to stop?” he said. “It was pretty much every other day, pulling into the petrol station and seeing it had gone up again.
“It also has an impact on things like service, maintenance, tyres, because, of course, there’s delivery costs, which are passed on to us as instructors.”
He said he had not yet passed the additional costs on to customers.
“If it was to keep going up at the rate it has, then I would have to consider it, but at the moment I’m really trying to keep a lid on it as much as possible,” he said.
