Economists are sounding the alarm over the looming inflation “twist” that will hit millions of UK households as a result of the US-Iran war.
Predictions from major financial institutions cluster between 2.8 per cent and three per cent, as the Office for National Statistics (ONS) prepares to unveil the latest consumer price index (CPI) rate next week.
However, analysts are cautioning that this relative calm may prove short-lived, with the conflict in the Middle East threatening to reignite cost-of-living pressures through surging energy costs in the months ahead.
Deutsche Bank and Pantheon Macroeconomics both anticipate CPI holding firm at three per cent for February, with reduced fuel costs and slower services inflation counterbalanced by rising clothing prices and higher airfares.
Inflation is expected to surge in response to the conflict in the Middle East
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Oxford Economics takes a slightly more optimistic view, with senior economist Edward Allenby projecting a dip to 2.8 per cent, driven primarily by falling petrol prices and moderating services sector inflation.
Barclays analysts sit between these estimates at 2.9 per cent, similarly attributing their forecast partly to lower pump prices during the month.
Sanjay Raja, Deutsche Bank’s chief UK economist, warned 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 Iran war has caused major disrupton across the globe | GETTY
How has inflation changed over the years?
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ONS
Mr Raja added: “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 forecasts in recent days, with the US-Israel war with Iran clouding the economic outlook considerably.
The Bank of England acknowledged on Thursday that rising wholesale energy costs would push back the timeline for inflation returning to target, noting fuel prices were already climbing.
Central bank forecasters now expect CPI to reach approximately 3% in the second quarter of 2026, a significant upward revision from the 2.1% projected in February.
What is driving inflation in the UK?
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ONS
Mr Allenby said he now anticipates inflation surpassing four per cent during the latter half of 2026.
He said: “Under our updated assumptions, we now anticipate a much sharper rise in petrol prices, while higher wholesale gas prices cause a 19 per cent increase in the Ofgem energy price cap in July.”
Pantheon Macroeconomics concurred that sustained gas price spikes could drive CPI towards four per cent later this year.
The ONS will unveil the CPI inflation rate figures for the 12 months to February 2026 on Wednesday, March 25.