UK CPI Holds at 3%, Iran Energy Shock Tests BoE
UK inflation held at 3% in February, an 11-month low, before the Iran war pushed petrol costs up and threatened a new shock to household finances. The Office for National Statistics (ONS) reported the CPI unchanged and in line with expectations, with motor fuel costs being one of the main drags on inflation in February—a factor that quickly reversed after oil prices rose above US$100/barrel. The pound remained under pressure, falling around 0.25% to US$1.3376.
However, the February data is now seen as a baseline before the energy shock kicks in. Bloomberg Economics estimates inflation could be around 1 percentage point higher by year-end due to the impact of the war on energy markets, resurfacing concerns about a price “feedback loop.” This situation revives memories of 2022, when the BoE struggled to mitigate the energy shock following Russia’s invasion of Ukraine. Last week, the MPC reiterated its “ready to act,” even as one typically dovish policymaker warned of a potential interest rate hike if the energy boom is prolonged.
The market has also turned: traders are now betting the Bank of England will raise interest rates at least twice this year, contrary to pre-war expectations of a cut when inflation was expected to fall to the 2% target by the spring. On the political front, Prime Minister Keir Starmer stated that the government is preparing measures to support the economy and sectors most affected by the war, while Chancellor Rachel Reeves is said to be considering tightening oversight of companies exploiting the war to raise prices unreasonably, as the risk of a repeat of the cost of living crisis could erode public support for the government.
Source: Newsmaker.id
