British consumer price inflation held at 3% in February, unchanged from January's rate, official figures showed today, ahead of a likely upward lurch as war in the Middle East pushes up prices.
Lower petrol prices in February helped offset a rise in clothing costs, the Office for National Statistics said, but that relief looks set to prove short-lived, with oil prices now around 50% higher than a month ago.
"Today's inflation report is little more than a relic of the world before the Iran conflict," Luke Bartholomew, deputy chief economist at fund managers Aberdeen, said.
Before the US-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 Bank of England sharply increased its inflation forecast, predicting it would rise towards 3.5% by the middle of the year.
A survey published yesterday by US bank Citi showed inflation expectations among the British public for the coming year have surged to 5.4% from 3.3%, their biggest monthly increase in more than 20 years, adding to the Bank of England's challenge.
While most UK 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 today were betting on two or three quarter-point interest rate rises by the Bank of England 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 Bank of England would raise rates.
Today's data showed services price inflation - which the Bank of England 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.
"The upside surprise in core inflation today will be of concern for the Bank given it shows we are still contending with sticky price pressures even before accounting for the recent spike in energy prices," Zara Nokes, global market analyst at JP Morgan Asset Management, said.
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 UK government has introduced measures to limit rises in the cost of living, although finance minister Rachel Reeves said any household energy subsidies this year would be more narrowly targeted than during the last gas price surge in 2022.
After the data, Reeves highlighted government measures taking effect next month which would reduce some fixed costs in household energy bills and said the government would be "acting to protect people from unfair price rises if they occur".
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.
