Don't be fooled by the UK's pre-war inflation print — a 'brutal' surge could be coming

The U.K. inflation rate stood firm at 3% in February, according to the latest figures from the Office for National Statistics (ONS) which marked the last reading before the start of the Iran war.

Economists polled by Reuters had expected the consumer price index to remain unchanged from the previous month.

Core inflation, which excludes energy, food, alcohol, and tobacco, stood at 3.2% in February, up from 3.1% in January.

“After last month's slowdown, annual inflation was unchanged. The largest upwards driver was the price of clothing, which rose this month but fell a year ago,” Grant Fitzner, the chief economist at ONS, commented on X.

“This was offset by falls in petrol costs, with prices collected before the start of the conflict in the Middle East and subsequent rise in crude oil prices,” he added.

The inflation print covers the final monthly period data before the U.S. and Israel launched airstrikes on Iran in late February, prompting retaliatory strikes by the Iranian Republic. The was down 0.17% against the dollar at $1.3385 following the data release.

An ongoing and almost total block on the Strait of Hormuz, a vital maritime passage for oil and gas out of the Middle East, has sent global energy prices soaring. The U.K. is particularly exposed to rising energy prices due to its reliance on oil and gas imports, and lack of gas storage facilities.

While economists expect the inflation rate to drop in April due to a reduction in household energy bills linked to government cuts to “green levies,” consumer prices are expected to rise significantly thereafter if the war continues.

ICAEW Chief Economist Suren Thiru warned Wednesday that a “brutal inflation surge” is coming.

“February's unchanged inflation is a false flag for the economy as these figures pre-date the eyewatering energy shock induced by the Middle East conflict and the subsequent financial pain facing consumers and businesses,” he said in emailed comments.

“While inflation should fall next month as the cut to green levies temporarily lowers energy bills, a brutal inflation surge looms with skyrocketing oil and gas costs likely to lift the headline rate above 4% by the summer,” he added.