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UK inflation maintained at 3% in February… Oil price shock from the Iran war is a variable

Britain's February consumer price increase rate was maintained at 3%, but since the statistics were compiled before the Iran war, a warning was issued that a future surge in oil prices could change the price path. Rising clothing prices drove up prices, and before the war, falling fuel costs and discounts on alcohol served as downward factors.

Published

March 25, 2026

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News Desk

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UK prices stopped at 3% in February as expected, but what the market really wants to see are the numbers from March onwards. This figure was collected before the Iran War (US-Israel vs. Iran), so the key risk is that prices may rise again if the oil price shock is reflected in earnest after the war.

Summary of February CPI: Meaning of ‘Maintaining’ 3%

According to the Office for National Statistics (ONS), annual inflation (rate of increase in prices compared to a year ago) in February was 3%, the same as January. The ‘gentle downward trend’ in the inflation rate in recent months has stopped for a while, and the results are generally in line with market expectations.

However, an important premise is the time when the numbers were compiled. The ONS confirmed that these statistics were collected before the start of the war in Iran, and explained that the pace of inflation could accelerate again in the future as the war stimulates oil prices.

Main culprit driving up prices: Clothing and shoe prices

The biggest ‘upside factor’ in the ONS figures was clothing prices. In February, clothing and shoe prices rose 0.9% on a 12-month basis, compared to the fact that there was little change in the previous 12 months (January).

ONS chief economist Grant Fitzner also said that the 'base effect', in which clothing rose this month and fell in the same month a year ago, pushed up the annual rate of increase. In other words, not only the monthly movement of the item itself, but also the movement in the opposite direction from the same month of the previous year made the number stand out more.

Downside factor: ‘fuel costs’ held up until the war

February statistics show that vehicle fuel (gasoline and diesel) prices fell, partially suppressing overall prices. The ONS emphasized that these prices were collected before the Middle East conflict and the resulting rise in crude oil prices.

According to the ONS, the average price of car fuel in February was 131.6 pence per liter, the lowest since June 2021. However, as wholesale oil prices soared after the war, gas station prices are said to have risen much higher than this level, so ‘indicator lags’ can quickly become apparent.

Ripple effects of oil price shock: It could spread to energy, food, and leisure

The oil price shock caused by the war does not simply end with gas station prices. According to the article, a surge in crude oil prices can have a knock-on effect not only on energy bills but also on the prices of other items, such as food and leisure, as manufacturers and companies pass on the costs.

The ONS added that alcohol discounts (discounted alcohol) played a role in pulling down overall prices, and that inflation in the alcohol and tobacco sectors was at its lowest since February 2022. However, if the cost pressure of oil production increases, this ‘partial buffer’ may not be sufficient.

Site ① School bus company: ‘Fuel costs increased by 20% in 3 weeks’

James Palmer, operator of the Acme Bus Company, which transports students to and from school in Essex and Hertfordshire, said post-war fuel costs were already putting pressure on his business. He complained that he had become uncertain about what the price would be tomorrow or even whether he would be able to order fuel on time.

According to Palmer, the company was paying about £1.21 per liter for bulk purchases three weeks ago, but is now paying about £1.86 per litre. He said that in recent years, with the burden of labor costs, “difficult decisions” had to be made to maintain bus operations, and ultimately, price increases were “inevitable.”

Site ② Businesses dependent on heating oil: 59p → surge of £1.50

Daniel Pilley, owner of Gainsborough Health Club & Spa in Suffolk, relies on heating oil to heat his swimming pool and facilities. He explained that since the company has to purchase 500 liters every week, price changes directly affect the cost structure.

The numbers he presented are even more dramatic. The price of heating oil jumped from 59 pence (59p) per liter to 1.50 pounds (£1.50) in two weeks. He criticized this as ‘profiteering by large oil companies,’ and the article also reported that the UK’s competition authorities had begun an investigation into suspicions of profiteering by heating oil suppliers.

Bank of England (BoE) and interest rate path: expectations of a cut are wavering

If oil prices stimulate inflation again, the direction of monetary policy may change. In the article, as the price outlook has worsened, more and more analyzes have concluded that ‘the possibility of an interest rate cut this year has disappeared,’ and some even said that they expected an interest rate increase within the year.

The Bank of England's inflation target is 2%. When inflation exceeds the target, an attempt is made to reduce upward pressure on prices by raising the base interest rate to slow down consumption and demand. For reference, the latest wage index (excluding bonuses) also mentions data showing that the wage growth rate has fallen to 3.8% per year, the slowest level in over five years.

Data changes and checkpoints: ‘accuracy’ and ‘imputation speed’ of prices

This February’s statistics included ‘supermarket scanner data’ for the first time. ONS explained that it can provide a more accurate picture of food prices by replacing much of the existing on-site price collection. In other words, future food inflation announcements must also take into account changes in measurement methods.

There are three points to watch going forward. (1) How quickly the rise in oil prices after the war is reflected in gas station, heating, and electricity rates, (2) How much costs are passed on to food, leisure, etc. by companies, and (3) What ‘conditions’ does the re-acceleration of prices attach to the Bank of England’s interest rate decision (cut vs. freeze vs. increase). From the perspective of investors with a large portion of U.S. growth stocks, it is also noticeable that the re-inflation of oil prices could shake up the path of long-term interest rates and serve as a subtle headwind to the valuation of technology stocks.

In the end, this ‘3% maintenance’ is closer to the last snapshot before the war rather than relief. It has become important to see how much fuel and energy items rise in the next CPI, and at the same time, how much the slowdown in wages offsets prices. If you also check the weekly price trends of gas stations and heating oil and changes in the tone of remarks of Bank of England members, you can detect changes in the direction of prices more quickly.

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