Key insights
- UK inflation rose to 3.3% in March, driven by fuel prices, with expectations of reaching 4% due to rising energy bills. The Bank of England is unlikely to raise rates unless inflation exceeds 4%. While this has limited direct impact, persistent global inflation contributes to uncertainty and risk-off sentiment, potentially weighing slightly on US equities.
Investing.com -- British inflation climbed in March driven by a surge in fuel prices, and a looming increase in household energy bills is set to push it towards 4% later this year, though analysts say the bar for a Bank of England rate hike remains far from met.
The Office for National Statistics on Wednesday said the consumer price index rose to 3.3% in March, up from 3% in February, as motor fuel prices swung from an annual decline of 4.6% to a rise of 4.9% - the highest since January 2023.
Petrol prices rose 8.6 pence per litre between February and March, while diesel jumped 17.6 pence.
Transport costs broadly surged 4.7% annually, with air fares rising 10% month-on-month, the largest February-to-March jump since 2016, driven by long-haul routes over the Easter period. Food prices also accelerated to 3.7% from 3.3%.
Core CPI, which strips out energy, food, alcohol and tobacco, edged down to 3.1% from 3.2%, while services inflation ticked up to 4.5% from 4.3%.
Economists said the rise in headline inflation was largely driven by energy-related components. Analysts at ING said higher motor fuel and heating oil added roughly 40bp to headline inflation.
They said underlying pressures remained relatively contained, noting that services inflation was lifted by volatile air fares, while their preferred measure of core services held at around 4.2%.
ING expects inflation to rise further in coming months, potentially reaching between 3.5% and 4%, partly due to an increase in household energy bills when the Ofgem price cap is updated in July.
However, lower wholesale gas prices could limit the rise in the cap to 10-15%, keeping inflation closer to 3.5%.
The brokerage said the threshold for further monetary tightening had not been met and does not expect the Bank of England to raise interest rates this year unless inflation rises materially above 4%.
Britain’s inflation rate remains above the European Union average of 2.8%, as well as Germany’s 2.8% and France’s 2%.