Key events
Heather Stewart
At a Resolution Foundation event on the impact of the war this morning, experts have been discussing the dilemma facing Bank of England policymakers in the coming months, with inflation likely to continue rising, our economics editor Heather Stewart reports.
Michael Saunders, a former member of the Bank’s monetary policy committee (MPC), now at Oxford Economics, said he expects a couple of rate rises later this year – because the risks of letting inflation get out of control are greater than of over-reacting now.
The cost of keeping rates too low and then having to catch up would be really high.
He pointed out that equally valid economic models point to wage growth of 3.25% this year – or 4.5%.
If they wait, and then find that pay growth is higher, and inflation expectations may be rising disproportionately, interest rates then would have to rise quite a long way.
I think there’s a reasonable chance you will get some tightening this year.
Saunders said he would therefore,
pencil in a couple of hikes. Probably not next week. I think more likely one in June to September, one perhaps in the fourth quarter this year.
However, Liz Martens, of HSBC, said weak growth in the economy might help to constrain so-called “second round effects,” where wage growth rises, and firms pass on cost increases by raising prices.
It’s kind of three phases: number one, ‘I want a pay rise’. Well, yes, obviously. Number two, I have to get that pay rise. And number three, my employer then has to be able to pass that back on to their customers. And I think steps two and three are much trickier, in this economy.
Oil prices are rising again, as the situation in the Middle East remains very volatile.
Donald Trump unilaterally extended the ceasefire between the US and Iran, but there have been reports of two attacks by Iran on cargo ships in the strait of Hormuz, and the US maintains its blockade of Iranian ports.
Brent crude reversed an earlier dip to $96.54 a barrel, and is trading closer to $100 a barrel, at $99.32 a barrel, up 0.9%.
The FTSE 100 index has turned positive, trading 6 points higher at 10,504. The German stock market is flat and the French, Italian and Spanish indices have dipped slightly, giving up earlier modest gains.
The hospitality sector is counting the cost of the Iran war.
Kate Nicholls, chair of UKHospitality, which represents bars, restaurants and hotels, said:
The inflationary impact of the conflict in the Middle East is evident in today’s figures.
Hospitality businesses are highly exposed to increased fuel prices, through the price of food, drink, transport and other key inputs. As one of the final links in the food supply chain, the sector cannot be expected to pick up the bill for increased costs down the chain.
Hospitality is already one of the most heavily taxed sectors in the economy and there is no room to absorb further cost increases. Ultimately, it will result in price rises at the till, further driving inflation.
The impact on consumer demand should be closely monitored, as our pubs, restaurants, cafes and hotels will be the first to feel the combined hit of increased input costs and reduced spending.
The government should be looking closely at how it can reduce the cost of doing business for demand-sensitive sectors like hospitality, which are uniquely exposed to these kinds of economic shocks.
The latest data is pointing to a “steady market, with values stabilising and modest annual growth being recorded,” according to Nick Leeming, chairman of the estage agent Jackson-Stops.
Transaction activity continues, but conditions are more constrained than in previous periods. Buyer demand is present, although increasingly contingent on pricing and financing, with affordability remaining a key consideration in determining the pace of sales.
Performance continues to vary across regions, with markets characterised by stronger demand and constrained supply proving more resilient, while others are experiencing longer timeframes to agree sales and greater price sensitivity.
Looking ahead, the near-term outlook will be influenced by the direction of mortgage rates and wider financing conditions. Recent adjustments in mortgage pricing, alongside ongoing uncertainty around the policy outlook from the Bank of England, are likely to weigh on momentum, even where underlying demand remains intact. At the same time, heightened geopolitical uncertainty is making the outlook more difficult to predict over the coming months. However, the market has so far shown continued resilience, with activity continuing even as borrowing costs have edged higher in recent weeks.
UK rent increases slow, house price inflation edges higher
Rent increases in the UK have slowed, while house price inflation accelerated slightly, according to official figures.
Average private rents increased by 3.4%, to £1,377 a month, in the 12 months to March; this annual growth rate is down from 3.6% in February, the Office for National Statistics said.
Monthly rents increased to £1,434 (3.4%) in England, £830 (4.8%) in Wales, and £1,022 (2.1%) in Scotland, in March. In Northern Ireland, average rents increased to £880 (5.0%) in January.
In England, private rents annual inflation was highest in the North East (6.5%), and lowest in London (1.7%) last month.
The average value of a home in the UK increased by 1.2%, to £268,000, in the 12 months to February, up from 1% in January.
House prices increased to £290,000 (0.8%) in England, £210,000 (2.5%) in Wales, and £187,000 (2.3%) in Scotland.
Here’s more reaction to the rise in UK inflation to 3.3%.
Sharon Graham, general secretary of the Unite union, said:
Today’s uptick in inflation looks like it is just the beginning. Before the war in Iran, workers were already forecast to get poorer. The outlook is now looking increasingly bleak.
Workers must not pay the price yet again, for a crisis not of their making. As a minimum the government must take decisive action on soaring energy bills.
TUC general secretary Paul Nowak said:
Households are feeling the pain from Trump’s illegal war. Big rises in petrol prices are pushing up inflation and shockwaves from the war are putting recent improvements in growth under threat.
But the Bank of England must remain focused on cutting rates as soon as possible. Coupled with Trumpflation, higher interest rates would increase the pressure on already stretched families and businesses. But lowering rates would provide vital support for economic growth, which is an important part of the Bank’s remit too.
And ministers must go further to shield households and businesses. The last budget saw welcome action on energy prices, rail fares and prescriptions.
But more support for industrial energy prices is needed. We need to see a targeted emergency package in key foundation industries in sectors including chemicals, glass and ceramics to protect jobs.
Britain overhauls energy regulator, granting it powers to ban executive bonuses
Britain will overhaul its energy regulator Ofgem, the government said, as it granted it new powers to enforce consumer law and ban executive bonuses.
The government hopes the changes will help restore consumer and industry confidence in the regulator, which has been criticised for not acting quickly enough to protect consumers from high energy prices.
Under the changes, Ofgem will be able to enforce consumer law directly, bypassing what officials called a “lengthy courts process,” to make sure customers get what they are owed when companies treat them unfairly. The watchdog will also be empowered to ban bonuses for energy executives who break the rules.
Ed Miliband, the energy secretary, said the measures amounted to “tough and fair” action to fight for consumers’ rights.
The reforms will also streamline Ofgem‘s remit by transferring oversight of home upgrade schemes to the new Warm Homes Agency.
Since Ofgem was set up in 2000, the market has grown more complex, with a wider range of products and services for consumers to choose from, and growing numbers of customers in parts of the market which are covered by little, if any, regulation.
That includes heating oil customers, who have seen prices spike following the start of the Iran war on 28 February. Last month the government announced funding worth over £50m to support low-income families reliant on heating oil, and committed to introducing new consumer protections to the sector.
Tim Jarvis, Ofgem’s interim chief executive, said:
We have delivered significant reforms in recent years, but this review enables us to make changes at a more systemic level to ensure we are delivering an energy system that works for consumers, that is attractive to investors and provides a stable, reliable environment for participants in the industry.
Gillian Cooper, director of energy at Citizens Advice, said:
Ofgem should now seize the opportunity to bring about a more innovative market, with better choices and protections for consumers, ensuring energy suppliers know there are real consequences for falling short.
Today’s UK inflation data showed core inflation, excluding volatile items like energy, food, alcohol and tobacco, slowed to 3.1% last month from 3.2% in February.
Inflation in the services sector, which is closely watched by the Bank of England, rose from 4.3% to 4.5%.
Adam Hoyes, senior asset allocation analyst at the fund manager Rathbones, said:
The increase in inflation in March captures the first effects of the conflict in the Middle East on UK households. While it may have temporarily reversed in April, inflation is still likely to be higher over the rest of 2026 than most expected at the start of the year. We think investors would be wise to take heed from recent events and prepare for a world of higher and more volatile inflation over the longer term.
We think headline inflation will probably have eased back to around 3% again in April as hikes from this time last year in other ‘regulated’ prices, such as water bills, road tax, and rail fares drop out of the year-on-year calculation. But it’s worth recalling that before the conflict erupted many were expecting inflation to be much closer to the 2% target in April. The outlook has changed materially.
Turning to the outlook for interest rates, he said:
One crumb of comfort for rate setters at the Bank of England will be that there were few signs of higher energy costs putting upward pressure on prices elsewhere in the economy yet… We expect these so-called ‘second-round effects’ to be weaker than after the energy price shock in 2022 given how different the economic backdrop is. With a much cooler labour market, workers don’t have the same bargaining power to demand higher wages. Monetary and fiscal policy are both much less supportive than they were back then too. All else equal, that means the Bank of England has a bit more breathing room to wait and consider its response.
Even so, we saw little evidence from today’s data to allay our concerns about the persistence of services inflation, which preceded the war. One underlying measure we track that ignores the impact of ‘regulated’ and volatile services prices has essentially not budged for almost a year now, and remains materially above its long-run pre-pandemic average. At the margin, that will make policymakers more hesitant to resume interest rate cuts.
The outlook for inflation and interest rates beyond April remains heavily dependent on developments in the Middle East and global energy markets. The latest change shift in the US position overnight highlights the difficulty of predicting how the situation will evolve with any certainty. For us, the main takeaway from recent events has been a stronger conviction in our long-held view that the world is likely to be a more unstable place, with inflation and interest rates higher and more volatile, than we became used to in the 2010s.
Middle East war ‘could wipe out three quarters of chancellor’s headroom’
A further escalation in the Middle East conflict could have a severe impact on government borrowing, with analysis suggesting the scenario would eradicate three-quarters of Rachel Reeves’ fiscal headroom built up in the autumn budget.
The influential Resolution Foundation has found that a “severe but plausible scenario”, in which the conflict intensifies and delivers the largest hits to the economy, would result in government borrowing increasing by £16bn a year in 2029-30.
Reeves, the chancellor, built up fiscal headroom of £21.7bn in the autumn budget, to be able to meet the fiscal rule that spending must be met by tax revenues.
Living standards have been hit by the Iran war, with petrol prices surging 20% and energy bills forecast to rise by up to 20% in July, but there are fears about the wider economic impact on the UK.
Inflation rose to 3.3% last month from 3% in February driven by higher petrol and diesel prices and air fares, official figures showed today.
The thinktank said the chancellor should ensure planned support with energy bills is targeted and temporary, as unfunded universal support risks pushing interest rates higher.
Borrowing £20bn to provide additional support for households would push up mortgage rates by a 0.4 percentage points, the foundation’s modelling showed.
Simon Pittaway, senior economist at the Resolution Foundation, said:
No-one knows which direction the current conflict in the Middle East will take but we do know that it will make us all poorer.
The cost of filling up the car has already increased and, from July, so too will energy bills.
The conflict is going to make the state poorer too. A deterioration in the conflict that sustains some of the worst hits to the economy could deal a £16 billion hit to the public finances.
The Chancellor deserves credit for building up enough of a buffer in last year’s budget to withstand a hit of this scale. And by keeping any support with energy bills targeted and temporary, she should be able to weather this latest economic shock with her fiscal rules intact.
Yvette Cooper, the foreign secretary, has again warned that the closure of the strait of Hormuz is “hitting the global economy”, amid international efforts to safeguard the crucial shipping route.
The Resolution Foundation said the impact of the conflict has so far been a lot more “muted” compared to Russia’s invasion of Ukraine, when gas prices rose 300p per therm, compared to a peak rise of 78p in March 2026.
But it said the UK economy appears more vulnerable to the conflict than others because of its exposure to gas, which accounts for 62% of household energy consumption, and the “heightened sensitivity” of UK interest rates to global developments.
Despite UK gross domestic product being “half as energy-intensive as the world average”, both the International Monetary Fund and the Organisation for Economic Co-operation and Development downgraded UK growth by 0.5 percentage points this year – the biggest markdown of any member of the G7 group of advanced economies.
The Resolution Foundation estimates that for a typical recent first-time buyer reaching the end of their fixed rate mortgage deal, costs have increased by around £100 since the start of the war.
The government borrowing figures for the last financial year will be published by the Office for National Statistics on Thursday.
A HM Treasury spokesperson said:
The forecasts here are pure speculation. The impact of the conflict is, as the report’s authors say themselves, highly uncertain.
The report reinforces why we are right to focus on making the UK more resilient by securing greater energy security and improved public finances.
We entered this conflict in a stronger position because of the choices this Government took to build economic stability. We are boosting our energy security, backing British industry and protecting households in a targeted and timely way.
European stocks rise moderately, oil dips, hovering below $100 a barrel
European stock markets have moved cautiously higher, with the exception of London’s FTSE 100 index, which has dipped 0.1%.
The UK’s benchmark index fell 13 points to 10,484 in early trading.
Germany’s Dax rose nearly 0.5%, while France’s CAC, Italy’s FTSE MIB and Spain’s Ibex all added 0.2%.
Brent crude has dipped 0.5% to $98.03 a barrel.
Donald Trump unilaterally extended the ceasefire between the US and Iran, but the US continues its blockade of Iranian ports, and the strait of Hormuz remains closed.
There are reports that a container ship off the coast of Oman was fired at by an Islamic Revolutionary Guard Corps gunboat, according to the United Kingdom Maritime Trade Operations.
Condom prices could rise 30% due to Iran war, says world’s top producer Karex
Condoms are also going up in price. The world’s top condom producer, Malaysia’s Karex, plans to raise prices by 20% to 30% and possibly further if supply chain disruptions drag on due to the Iran war, its chief executive has said.
Karex is also seeing a surge in condom demand as rising freight costs and shipping delays have left many of its customers with lower stockpiles than usual, CEO Goh Miah Kiat told Reuters.
The situation is definitely very fragile, prices are expensive … We have no choice but to transfer the costs right now to the customers.
Karex produces more than 5 billion condoms annually and is a supplier to leading brands like Durex and Trojan, as well as national health systems such as the UK’s NHS and global aid programmes run by the United Nations.
Since the conflict began in late February, Karex has seen costs increase for everything from synthetic rubber and nitrile used in manufacturing condoms to packaging materials and lubricants such as aluminium foils and silicone oil, Goh said.
Peter Dixon, senior economist at the National Institute of Economic and Social Research, a respected think tank, said:
While inflation may fall back in April due to base year effects, it will climb further in the course of 2026, remaining well above the Bank of England’s target.
The monetary policy committee’s dilemma in the coming months is whether it should look through what may only be a temporary rise in inflation, or whether it will need to tighten policy to tackle second round effects [on wages].
On the one hand, rising energy prices will add to inflation over the rest of the year. However, the labour market is broadly in balance, so second round inflation effects are likely to be relatively muted.
Nevertheless, the MPC cannot risk appearing complacent, and we therefore expect one precautionary 25 basis point rate increase over the coming months.
Food inflation picks up
Food inflation has also picked up again, to an annual rate of 3.7% last month, up from 3.3% in February.
Chocolate and confectionery, meat, fish, and soft drinks became dearer, while bread and cereals, and dairy products pulled the inflation rate lower.
The Food and Drink Federation has crunched the numbers.
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Prices rose the fastest for beef and veal (18.8%), whole milk (12.7%) and confectionary products (11.1%).
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Prices fell for nine categories, with the largest drops for: flours (-6.8%), olive oil (-6.2%), and pizza (-2.6%).
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It will take 7-12 months for cost pressures on manufacturers to feed through to consumers
Liliana Danila, chief economist at the FDF, said:
The clouds are gathering, but the storm has not yet broken on rising food and drink inflation. The war in Iran has delivered a cost shock that is already too large for manufacturers to absorb in full. The impact on prices will take time to work its way through the system, but it’s only a matter of time before it does. For manufacturers, long-term contracts with suppliers and retailers mean it can take up to a year for higher costs to be fully passed through. But where products are less processed, or supply chains are shorter, prices will move more quickly. As a result, absent of any government intervention, we expect a gradual but persistent pickup in food inflation, reaching around 9%–10% by the end of the year.
This means we’re in a crucial window for action to limit the impact on shoppers. We’re working with government to look at the levers they can pull now to support food manufacturers now to soften the blow on consumers later in the year.
In better news for consumers, clothing prices fell by 0.8% in the 12 months to March, compared with a rise of 0.9% in the 12 months to February, marking the lowest recorded since March 2021, when prices were affected by the Covid-19 pandemic.
UK diesel and petrol prices jump, air fares also rise
The average price of petrol rose by 8.6p a litre between February and March, compared with a fall of 1.6p a litre a year earlier. The average price was 140.2p a litre, the highest since August 2024, the ONS said.
Diesel prices rose even more, by 17.6p a litre, compared with a drop of 1.6p a litre this time last year. The average price stood at 158.7p a litre, the highest since November 2023.
Air fares also increased, by 10% between February and March, compared with a fall of 0.3% a year ago. It was the largest monthly increase between February and March since 2016, when it was 22.9%. The upward effect came almost entirely from long haul routes, where the return flights were on the Tuesday immediately after the Easter weekend.
UK inflation climbs to 3.3%, driven by largest increase in fuel prices in over three years – business live
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s UK inflation day!
Inflation in the UK accelerated to 3.3% in March driven by higher fuel prices because of the Iran war.
The annual inflation rate rose from 3% in February, according to the Office for National Statistics.
On a monthly basis, consumer prices rose 0.6% in March, compared with a rise of 0.3% in March 2025. Motor fuels were the biggest factor behind the increase, while clothing made a downward contribution to inflation.
Transport inflation, including motor fuels and airfares which also rose, almost doubled to 4.7% in March, from 2.4% in February, the highest recorded since December 2022.
Asian stock markets mostly rose as did US stock futures, and oil prices fell after Donald Trump said he would extend the two-week ceasefire with Iran, amid frantic efforts to bring the two sides back to the negotiating table.
Japan’s Nikkei and China’s CSI 300 both rose 0.4% while Hong Kong’s Hang Seng fell 1.4%.
The US military maintained its blockade of Iranian ports, and Iran has said the US must end it in order for negotiations to resume.
Brent crude has fallen 1.1% to $97.37 a barrel, but remains near $100 a barrel, with the strait of Hormuz still closed.
The Agenda
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9.30am BST: UK house prices and rents
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Noon BST: US MBA mortgage applications
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3pm BST: Eurozone consumer confidence
