UK Inflation Holds Steady at 3% in February, But Middle East Conflict Threatens Summer Surge
Fresh official figures are expected to confirm that UK inflation remained steady at 3% in February, but experts warn households could face another significant twist in the cost-of-living story in the coming months due to escalating conflict in the Middle East.
February Figures Show Stability Amidst Uncertainty
The rate of Consumer Prices Index (CPI) inflation has been gradually easing back toward the Bank of England's 2% target level since last summer. A consensus of economists indicates the official figures for February, to be published on Wednesday, will show CPI holding at 3%, unchanged from January's reading.
Economists from Deutsche Bank and Pantheon Macroeconomics are among those anticipating CPI to remain steady at 3% in February. They note that lower fuel and services inflation during the month was offset by higher clothing prices and increased air fares.
However, not all analysts agree on the exact figure. Edward Allenby, senior economist at Oxford Economics, believes CPI inflation actually fell to 2.8% in February, largely thanks to a predicted decline in petrol prices and slower inflation in the services sector. Meanwhile, analysts at Barclays expect the headline rate to dip slightly to 2.9%, also partly attributable to lower pump prices during the month.
Middle East Conflict Clouds Inflation Outlook
Sanjay Raja, Deutsche Bank's chief UK economist, has emphasized that the inflation outlook has rarely been more uncertain than it is now. In a research note, he wrote: "We expect the UK's disinflation story will take another twist on its eventual way down to target. The good news is that CPI is still expected to slide down in the coming months. The bad news? Higher energy prices appear poised to lift CPI meaningfully over summer, adding yet another hump in the inflation profile."
Economists have been revising their projections in recent days, warning that the US-Israel conflict with Iran has significantly muddied the economic outlook. The Bank of England acknowledged on Thursday that recent increases in wholesale energy costs would delay the return of CPI inflation to its target, as higher fuel prices are already being observed.
The central bank now expects inflation to be around 3% in the second quarter of 2026, up from the 2.1% forecast in February. Bank officials stressed the situation remains volatile, noting that events over the next six weeks could provide clearer insight into the scale of disruption and its impact on prices.
Projections Point Toward Summer Price Surge
Economists have weighed in with their own projections of where inflation could head if current conditions persist. Mr. Allenby now expects CPI inflation to exceed 4% during the second half of 2026. "Under our updated assumptions, we now anticipate a much sharper rise in petrol prices, while higher wholesale gas prices cause a 19% increase in the Ofgem energy price cap in July," he explained.
Pantheon Macroeconomics has echoed this concern, agreeing that if the latest spike in gas prices is sustained, CPI could be headed toward 4% later this year. This potential surge represents a significant deviation from previous expectations of continued disinflation toward the Bank of England's target.
The combination of geopolitical tensions in the Middle East and their direct impact on energy markets has created what economists describe as a perfect storm for inflationary pressures. While February's figures show temporary stability, the underlying trends suggest households may need to brace for renewed cost-of-living challenges as summer approaches.
