Inflation holds at 3% in ‘calm before the storm’ of Iran war

UK inflation held steady at 3% in February before the impact of an energy shock linked to war in the Middle East, official figures have revealed.

Economists have said data showing flatlining inflation highlights “the calm before the storm”, with inflation expected to accelerate again in the coming months.

The rate of Consumer Prices Index (CPI) inflation was unchanged from the level reported in January, the Office for National Statistics (ONS) said.

It was in line with predictions from economists.

However, the steady picture for inflation does not yet reflect the impact of the conflict in the Middle East on the cost of living, with the first attacks taking place at the very end of February.

Oil and gas prices have jumped in recent weeks due to the conflict and other goods prices could also be affected by disruption to shipping through the Strait of Hormuz.

Economists said inflation could lift as high as 4% in the third quarter of 2026 due to the projected surge in energy costs.

ONS chief economist Grant Fitzner said: “After last month’s slowdown, annual inflation was unchanged in February as various price movements offset each other.

“The largest upwards driver was the price of clothing, which rose this month but fell a year ago.

“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.”

The February data showed clothing and footwear prices contributed to inflation, with prices up 0.9% for the month – its highest level since March 2025 – after previously staying flat in January.

However, this upward impact on inflation was cooling inflation in other areas.

Inflation across the services sector eased slightly to 4.3% for the month, dipping to its lowest level for almost four years.

Slower alcohol and tobacco price rises were also a drag on inflation, easing to 3.6% for the month – the lowest since February 2022.

The slowdown was driven by falling inflation for the prices of beers, wines and spirits over the month.

Elsewhere, motor fuel inflation also eased back, with the average price of petrol falling by 1.6p per litre between January and February.

However, petrol and diesel prices have risen significantly since the latest data after the price of crude oil jumped due to the conflict in the Middle East.

Economists said on Wednesday that inflation is now set to accelerate over the coming months as the impact of the conflict feeds into the price of goods.

Stuart Morrison, research manager at the British Chambers of Commerce, said: “For businesses across the UK, today’s inflation data represents the calm before the storm.

“UK firms are particularly exposed to the economic impact of the crisis in the Middle East as our electricity prices are tightly tethered to global gas prices.

“This will feed directly into higher costs and renewed inflationary pressure in the months to come.”

Luke Bartholomew, deputy chief economist at Aberdeen, said: “Today’s inflation report is little more than a relic of the world before the Iran conflict.

“While the February report was broadly in line with expectations, and confirms that inflation was on a path back to 2%, the outlook for inflation has radically changed.”

Experts also indicated previous expectations that interest rates would be cut further this year have been scuppered, with many predicting the Bank of England will continue to hold them at 3.75% in an effort to diminish further price rises.

Matt Swannell, chief economic adviser to the EY ITEM Club, said: “With the growth outlook weak, unemployment high and rising, and policy already restrictive, we think a prolonged hold for bank rate is the most likely outcome.”

Chancellor Rachel Reeves said: “In an uncertain world we have the right economic plan, taking a responsive and responsible approach to supporting working people in the national interest.

“We’re taking £150 off energy bills and providing targeted support for those facing higher heating oil costs.

“We’re also acting to protect people from unfair price rises if they occur, bring down food prices at the till, and cut red tape to boost long-term energy security – building a stronger, more secure economy.”