UK inflation rises sharply as impact of Iran war felt

The Iran war and resulting hike in the price of oil has caused a sharp increase in the United Kingdom's inflation rate, pushing it up from 3 percent in February to 3.3 percent in the year to March.

The country's statistics agency, the Office for National Statistics, or ONS, said almost all parts of the economy have been negatively impacted.

Grant Fitzner, chief economist at the ONS, said: "The monthly cost of both raw materials for businesses and goods leaving factories rose substantially, driven by higher crude oil and petrol prices."

He said airfares and the cost of food were also pushed to higher-than-expected rates because of the price of oil, and that "the only significant offset came from clothing costs, where prices rose by less than this time last year".

Economists now expect UK inflation to peak later this year at around 3.5 percent to 4 percent, largely because of the war and the resulting blockade of the Strait of Hormuz, which is a busy seaway used by a large percentage of the world's seaborne oil tankers.

The UK's central bank, the Bank of England, has a longstanding target of limiting inflation to 2 percent and is likely to consider raising interest rates again, to offset the rise in inflation, which would lead to more expensive loans and mortgages.

However, higher energy costs attributable to the Iran war are also likely to mean consumers will have less disposable income, and will therefore spend less, slowing the nation's economy, which is something that could prompt the bank to lower interest rates, to promote borrowing and spending.

The bank's Monetary Policy Committee, which sets the interest rate, will meet next week to decide whether to raise or lower the rate, or leave it at the current 3.75 percent.

The latest inflation figures are the first to reflect the impact of the conflict on the UK economy since the United States and Israel began attacking Iran on Feb 28.

Within the overall inflation rate, some items rose in price more quickly than others, with fuel for vehicles shooting up 8.7 percent in March compared to February. In the year to March, fuel prices rose by 4.9 percent. Food inflation went up from 3.3 percent, to 3.7 percent.

The Food and Drink Federation, which represents manufacturers in the sector, said problems in the food supply chain, including more expensive fuel for transportation, are likely to be reflected in prices later this year, with food inflation likely to go as high as 10 percent.

The BBC quoted the UK's finance minister, Chancellor of the Exchequer Rachel Reeves, as saying: "This is not our war, but it is pushing up bills for families and businesses. That's why it's my number one priority to keep costs down."

earle@mail.chinadailyuk.com