The economic outlook has shifted dramatically following the Middle East conflict, leading to soaring oil and gas prices, and hopes of an interest rate cut in the coming months have all but disappeared. In a complete reversal of the situation before the war in the Middle East, markets are now pricing in at least one rate hike in 2026.
Grant Fitzner, the ONS chief economist, said: "Inflation climbed in March, largely due to increased fuel prices … Air fares were another upward driver this month, alongside rising food prices."
What caused inflation to rise to 3.3%?
The sharp increase from 3% to 3.3% came almost entirely from soaring petrol and diesel prices, which mirror the jump in global oil prices since the start of the war in the Middle East. The average price of a litre of petrol rose by 8.6p from 131.6p in February to 140.2p in March, the highest level since August 2024. The average price of a litre of Diesel rose even faster, by 17.6p from 141.1p to 158.7p, its highest point since November 2023.
This is reflected in the ONS overall transport prices figure, with motor fuel costs and air fares rising by 4.7% in the 12 months to March 2026, almost double the 2.4% figure recorded for last month.
There was also an increase in food price inflation, from 3.3% to 3.7%. This has been put down to rising chocolate and confectionery prices for Easter, as well as more expensive meat, fish and soft drinks.
According to the ONS, the only significant offset came from clothing, where prices still rose, but by less than at the same time last year. Core inflation - a measure that excludes volatile energy, food, alcohol and tobacco figures - fell from 3.2% in February to 3.1% in March, below expectations and showing that inflationary pressures in the UK, less tied to the war in Iran, are actually cooling.
What will happen to interest rates in the coming months?
Just weeks ago, the Bank of England forecast that inflation would hit the 2% target by the second quarter of the year. This would have paved the way for a cut to the base rate. However, the outlook has changed rapidly. The inflation figure for April 2026 is still expected to fall back, but not land close to 2%, before an increase in the summer.
Fuel prices could continue to rise, while energy bills will begin to reflect the global market when Ofgem updates the price cap in July. The Food and Drink Federation has predicted the food price inflation rate could reach 9% by December, with the closure of the Strait of Hormuz severely limiting global fertiliser supplies, though cost increases in the food supply chain can take many months to be reflected in prices on supermarket shelves.
Martin Beck, the chief economist at WPI Strategy, said: "How far inflation rises from here will depend heavily on developments in the Middle East.
"If recent signs of diplomatic progress translate into a sustained easing in tensions and energy supplies normalise, inflation could peak at about 3.5-4% this summer. But a renewed escalation could just as easily push inflation towards 5%."
The Bank of England Monetary Policy Committee (MPC) will next meet on 30th April to review interest rates, with financial markets expecting a decision to hold before at least one rise later in 2026. Ultimately, its decision will come down to whether it sees rising prices as a short-term spike or a precursor to a dangerous second wave of inflation that may require an early rate increase.
If you are interested in learning more about where interest rates might go in the future, check out our article on the latest UK interest rate predictions.
How will the inflation figures affect mortgages?
The prospect of interest rates staying higher for longer is unwelcome news for borrowers. Mortgage rates are heavily influenced by the Bank of England's base rate and the wider economic outlook. If lenders anticipate the base rate will rise in the coming months, they are likely to price their fixed-rate mortgage deals accordingly. It means that borrowers approaching the end of their fixed-term deal may need to act sooner rather than later, before the market begins to creep upwards.
If you are looking for a new mortgage, it may be helpful to compare current rates and consider speaking with a whole-of-market mortgage broker to explore the options available for your specific circumstances. The top deals can be found in our regularly updated article, 'Best mortgage rates in the UK'.
If you are unsure about the best type of mortgage for you, read our article 'Remortgaging in 2026', where Damien examines whether now is the right time to fix your mortgage rate.
What does inflation mean for savers?
Inflation has increased to 3.3%, well above the government target, and is likely to rise further in the coming months. It is easy to assume that high inflation ultimately leads to better returns for savers, but that does not always hold in practice. Banks often take much longer to pass on rate rises to savers than to borrowers. This means it can take a long time for high inflation figures to translate to a boost in the interest rate on your savings. Also, inflation erodes the value of cash, so your money in the bank will buy you less as the cost of living goes up. Making sure your savings are earning a good rate of interest can help offset the impact of rising living costs. You can find the best savings accounts in our article ‘Best savings accounts in the UK’.
What to do if you are struggling to pay your bills
Many essential household costs are on the rise. Food and energy costs are predicted to rise sharply in the coming months, and many household incomes are not keeping pace with the cost of living. However, there is help available if you are struggling.
If you think you might fall behind on your household bills, the best thing to do is to reach out to the relevant supplier first. If you explain your situation, there will typically be steps they can take to help you come up with a payment plan that works for both parties.
It's also a good idea to make sure you are claiming all of the support you might be entitled to. You can check your eligibility for various benefits on the entitledto website.
We also have several articles that may be more specific to your situation and could offer further help:
- How to save money on your energy bills
- How to save money on your water bills
- How to save money on your mortgage
- How to save money on your council tax
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