British inflation rises above expectations on energy shock from the war

Inflation in Great Britain rose to 3.3% y/y in March from 3.0% in February, in line with expectations, while monthly inflation was up by 0.7%, compared to 0.4% increase in March and consensus for 0.6% rise.

Core inflation, excluding volatile food, energy, alcohol and tobacco components, eased to 3.1% in March from 3.2% in previous month, but remains well above central bank’s target and continues to send warning signals.

The most significant jump was seen in prices paid by factories (PPI input) which rose by 5.4% in March from 0.7% increase in March, while the prices of goods sold by manufacturers (PPI output) were up by 2.6% last month from 1.8% in March.

Also, rise in services price inflation, BoE’s gauge for longer term inflation pressures, jumped to 4.5% in March from 4.3% in February.

Strong rise in inflation was mainly driven by higher fuel prices and signal that full scale negative impact from the war between US/Israel and Iran, that caused disruption in one ow world’s key oil supply routes, should be expected in coming months.

Also, rising prices revive fears that country might be on track to return to persistently high inflation that raises pressure on the central bank, although economists think that the latest data will be insufficient to push the Bank of England’s Monetary Policy Committee to bring rate hike on agenda on their policy meeting next week.

British inflation was the highest among the countries of G7 group before the war in the Middle East started, with the latest energy shock, expected to rise to 3.5% by mid-2026 and peak at 4%, according to IMF forecasts.