UK inflation rate steady in February ahead of Iran war

The UK inflation rate stayed at 3%in the year to February, largely in line with expectations, driven mostly by a rise in the price of clothing.

The figures from the Office for National Statistics (ONS) were collected before the start of the US-Israel war with Iran, which is expected to speed up the pace of price rises.

Annual inflation, which measures the rate of price increases over a year, remained the same as it was in January after months of steady falls.

Although the inflation rate has dropped since its high a few years ago, prices themselves are not coming down, but simply rising at a slower pace.

Chief economist of the Office for National Statistics Grant Fitzner said: "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.

"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."

The ONS said clothing and footwear prices rose by 0.9% in the 12 months to February compared to no change in price in the 12 months to January.

Meanwhile, discounted alcohol pushed inflation down, the ONS said, adding that alcohol and tobacco saw their lowest recorded inflation rate since February 2022.

Slowdowns in the rise of petrol and diesel price also led to lower inflation in the year to February.

The ONS said in February the price of car fuel was at its lowest since June 2021, where the average price per litre was 131.6p.

However, pump prices have risen much higher than this since wholesale oil prices surged following the start of the Iran war.

The oil price shock is also expected to have a knock-on effect for energy prices and other things such as leisure and food costs as manufacturers and firms pass on costs.

The ONS's February figures included, for the first time, supermarket scanner data, which replaced many of its physically collected prices, which the ONS said gave it a more accurate idea of overall food inflation.

James Palmer runs the Acme Bus Company in Saffron Walden and says rising fuel prices since the start of the Iran war are already having an impact on the business.

Every day, hundreds of school children in Essex and Hertfordshire rely on his buses to get them to and from school.

"It's the unpredictability of not knowing what the price is going to be tomorrow and maybe that you're not going to be able to order fuel", he says.

Three weeks ago, the company, which buys fuel in bulk, paid around £1.21 per litre. But he says he is now paying roughly £1.86 per litre.

Combined with increased staff costs over the last few years, James says "difficult decisions" will have to be made to keep the buses on the road. He says price rises are "inevitable".

"We don't want to be letting parents down, because we're providing a main source of transport for them. So it's quite worrying."

The latest inflation figures come after data last week showed that pay has grown at its slowest rate in more than five years.

Earnings, excluding bonuses, grew at an annual rate of 3.8%. Though pay growth is outpacing price rises, that could change if the Iran war drives up inflation.

Capital Economics predicts inflation could rise peak at 4.6% by the end this year, based on its current working assumptions about oil and gas prices.

Chancellor Rachel Reeves said she was taking measures to bring down the cost of living, though experts say her efforts are likely to be thwarted by the war.

"We are also acting to protect people from unfair price rises if they occur, bring down food prices at the till, and cut red tape to boost long-term energy security — building a stronger, more secure economy," she said.

Additional reporting Adam Woods