By David Milliken and Andy Bruce
LONDON, March 25 (Reuters) – British consumer price inflation held at an annual rate of 3.0% in February, unchanged from January’s rate, official figures showed on Wednesday, ahead of a likely upward lurch as war in the Middle East pushes up prices.
Economists polled by Reuters had expected inflation to remain at 3.0%, its lowest level since March 2025.
Before the U.S.-Israeli attack on Iran at the end of February, the Bank of England had forecast that inflation would fall to close to its 2% target in April, when changes to regulated household energy bills and other prices take effect.
But last week the BoE sharply increased its inflation forecast, predicting it would rise towards 3.5% by the middle of the year.
A survey published on Tuesday showed inflation expectations among the British public surged, adding to the BoE’s challenge.
While most households’ energy tariffs are currently capped, new prices are due to take effect in July and manufacturers have already reported the sharpest jump in costs since 1992, which may soon be passed on to consumers.
Financial markets on Tuesday were betting on nearly three quarter-point interest rate rises by the BoE this year, though many economists think the central bank will keep rates on hold due to the headwinds to growth from higher energy costs.
Governor Andrew Bailey last week advised people against making any firm bets that the BoE would raise rates.
SERVICES INFLATION LOWEST SINCE MARCH 2022
Wednesday’s data showed services price inflation – which the BoE watches closely as a gauge of longer-term inflation pressures – fell to 4.2% in February from 4.4% in January, its lowest since March 2022 and just below economists’ expected reading of 4.3%.
The decline reflected reduced inflation for restaurants, cafes and tickets for concerts and other cultural events.
However, core inflation, which excludes more volatile food, energy, alcohol and tobacco prices, rose slightly to 3.2% from 3.1%, where it had been expected to hold.
British inflation is the highest among major advanced economies and the country’s reliance on natural gas for electricity generation and heating makes it vulnerable to price shocks.
Prime Minister Keir Starmer’s government has introduced measures to limit rises in the cost of living, although finance minister Rachel Reeves said on Tuesday any household energy subsidies this year would be more narrowly targeted than during the last gas price surge in 2022.
British inflation rose to its highest since 1981 in October 2022 at 11.1% and over the past five years has rarely been near its 2% target.
(Reporting by David Milliken and Andy Bruce; Editing by William Schomberg)
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