Ask Onix
UK inflation climbs to 3.3% in March
The UK's annual inflation rate increased to 3.3% in March, up from 3% in the previous two months, according to the Office for National Statistics (ONS). The rise, the first since the US-Israel war with Iran escalated, has pushed inflation above the Bank of England's 2% target and may delay further interest rate cuts.
Energy and food prices fuel increase
The ONS attributed the March rise primarily to higher fuel costs, air fares, and food prices. Food inflation climbed to 3.7% in the year to March, driven by increases in chocolate, confectionery, meat, fish, and soft drinks-partly linked to the timing of Easter. The Food and Drink Federation warned that food inflation could reach 10% by the end of 2026.
While overall inflation remains below the 11.1% peak recorded in October 2022, the latest figures mark a reversal of the downward trend seen in recent months.
Bank of England holds rates amid uncertainty
The Bank of England has kept interest rates at 3.75% since December 2025, following six cuts from a 16-year high of 5.25% in August 2024. However, the conflict in the Middle East, which has disrupted global energy supplies, has led policymakers to warn of potential rate hikes later this year.
At its April meeting, the Bank's Monetary Policy Committee (MPC) voted unanimously to hold rates but cautioned that inflation could surge to 6% in a worst-case scenario. The next rate decision is due on 18 June.
"The war in the Middle East has introduced significant uncertainty. We may need to act forcefully if oil prices remain elevated," the Bank said in a statement.
Wages and unemployment trends
UK wage growth slowed to 3.6% in the three months to February, the weakest rate since late 2020. After accounting for inflation, regular pay rose by just 0.4% in real terms. Public sector wages grew by 5.2% annually, compared with 3.2% in the private sector.
Unemployment fell to 4.9% in the three months to February, down from 5.2% in the previous quarter, partly due to fewer students seeking work. However, job vacancies dropped by 29,000 to 711,000 between January and March, and early estimates suggest a slight decline in payrolled employees in March.
Global comparisons
The UK's inflation rate remains higher than those of the US and eurozone. In April, eurozone inflation stood at 3.0%, up from 2.6% in March, while US inflation jumped to 3.3% in March from 2.4% in February. Both the European Central Bank and the US Federal Reserve have held rates steady in recent months, with the ECB maintaining its main rate at 2% and the Fed at 3.50%-3.75%.
US President Donald Trump has criticised the Fed for not cutting rates further, and his expected pick to replace Chairman Jerome Powell in May, Kevin Warsh, is seen as more supportive of rate reductions.
Economic balancing act
The Bank of England faces a delicate task: controlling inflation without stifling economic growth. Higher interest rates can curb spending and slow price rises, but they also increase borrowing costs for businesses and homeowners, potentially leading to job cuts and reduced investment.
With inflation still above target and the economy stagnating, the Bank's next moves will depend heavily on how the Middle East conflict and global energy markets evolve in the coming months.
