UK inflation held steady at 3% for the 12 months to February 2026. While the rate remained unchanged, escalating global energy costs driven by the conflict in the Middle East have sparked fears that inflation could rise again soon. The Consumer Prices Index (CPI) figure, reported by the Office for National Statistics (ONS), was in line with expectations but remains above the government's 2% target.
With the economic outlook shifting dramatically due to rising oil and gas prices, hopes of an interest rate cut in the coming months have faded. In a complete reversal of the situation before the war in the Middle East, markets are now pricing in at least two rate hikes before the end of 2026.
What caused inflation to hold at 3%?
The steady 3% inflation rate resulted from a mix of rising and falling prices across various sectors.
- Food prices - The annual rate of food inflation fell from 3.6% in January to 3.3% in February, marking the lowest rate since March 2025.
- Motor fuels - Petrol prices averaged just 131.6p per litre in February, providing the largest downward pull on the headline inflation rate.
- Goods & Services - Services inflation (which covers things like hospitality, haircuts, and travel) eased slightly from 4.3% down to 4.2%, hitting its lowest rate since March 2022. Meanwhile, the inflation rate for physical goods remained completely flat at 1.6%.
- Clothing - The cost of clothing rose, which offset the price drops seen elsewhere.
- Core inflation - The core inflation rate, which excludes volatile factors such as energy and food, rose slightly from 3.1% to 3.2%.
Motor fuel costs for the February inflation figures were collected before the recent surge in crude oil prices. With the conflict in the Middle East effectively closing the Strait of Hormuz, energy and fuel costs have since spiked. It means that the recent drop in food and motor fuels inflation is likely to be short-lived, with price hikes expected due to higher supply chain costs. Kevin Brown, savings specialist at Scottish Friendly, explained: "For households and policymakers alike, this snapshot still largely reflects a world before the recent escalation in the Middle East. The more consequential data will come with March’s release, which may begin to show how rising oil and energy prices are feeding through to UK consumers."
What will happen to interest rates in the coming months?
Just last month, 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. At its most recent meeting, the Bank of England's Monetary Policy Committee (MPC) voted to keep the base rate on hold. Highlighting the growing global uncertainty, it stated: "The Committee will continue to monitor closely the situation in the Middle East and its impact on global energy supply and energy prices. It stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term".
Market expectations have shifted, with some analysts suggesting the next move in the base rate is likely to be an increase rather than a cut. The MPC will next meet to review interest rates on 30th April. 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, 'The 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 held steady at 3%, but it remains 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:
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