Why are UK prices rising more quickly?

Prices in the UK rose by 3.3% in the year to March, up from the 3% recorded in January and February, and above the Bank of England's 2% target.

These are the first official inflation figures since the start of the US-Israel war with Iran, which has put up energy and fuel costs around the world.

The Bank moves interest rates up and down to try to keep inflation on track. Six cuts since August 2024 have brought rates down to 3.75%, but the war is expected to delay further falls.

Inflation is the increase in the price of something over time.

For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.

The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS).

This virtual "basket of goods" is regularly updated to reflect shopping trends, with alcohol-free beer, dashboard cameras, and pet grooming equipment among items added in 2026, while premium bottled lager, some categories of wine and sheets of wrapping paper were removed.

The ONS uses price changes in the basket of goods over the previous 12 months to calculate inflation.

The main inflation measure is called the Consumer Prices Index (CPI), external, and the latest figure is published every month.

Although the March CPI figure of 3.3%remains above the Bank of England's target, it is well below the 11.1% figure reached in October 2022.

That was the highest rate for 40 years.

The increase in March - which means prices are going up more quickly than previously - was widely expected.

It was largely due to increased fuel prices, the ONS said, coupled with higher air fares and food costs.

Precisely because food or energy prices can be very volatile, the Bank of England also considers other measures, such as "core inflation", when deciding whether and how to change rates.

Core CPI was 3.1% in the 12 months to March, down from 3.2% in February.

UK inflation had been expected to be at or around the target level of 2% over the next five years, according to the official forecasts published alongside Chancellor Rachel Reeves' Spring Statement on 3 March.

But those predictions were made before the Iran war.

Inflation is now expected to peak at around 3.5% to 4% later in 2026.

Although inflation has fallen significantly since the October 2022 high, that doesn't mean prices are falling — just that they have been rising less quickly.

Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and energy prices surged again when Russia invaded Ukraine.

It then remained well above the 2% target, partly because of higher food prices.

Food price inflation has continued to be an issue. It rose from 3.3% to 3.7% in the year to March 2026, driven by increases in the cost of chocolate and confectionery, meat, fish, and soft drinks – possibly linked to the timing of Easter.

However, it can take seven to 13 months for cost increases in the food supply chain to feed through to prices on supermarket shelves.

The Food and Drink Federation, which represents manufacturers, warns food inflation could be as high as 10% by the end of 2026.

Employees who face higher living costs are more likely to push for pay rises.

Firms who are already facing higher staff costs as a result of increased employer National Insurance contributions and minimum wage hikes are then under pressure to put up their own prices. This can in turn contribute to higher inflation.

When inflation was well above its 2% target, the Bank of England increased interest rates to 5.25%, a 16-year high.

The idea is to make borrowing more expensive, giving people and businesses less money to spend. This can encourage people to save more.

In turn, this reduces demand for goods and slows price rises.

But it is a balancing act - increasing borrowing costs risks harming the economy.

For example, homeowners face higher mortgage repayments, which can outweigh better savings deals.

Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment.

In recent months, inflation has remained above the Bank's target at the same time as the economy has remained relatively flat and the jobs market has softened.

Therefore, the Bank has chosen to cut rates, despite high inflation, in an attempt to encourage people to spend more and get businesses to invest and create jobs to boost the economy.

The Bank of England began cutting rates in August 2024.

Six cuts since then have brought rates down to 3.75%, the lowest level since early 2023.

The most recent cut in December 2025 reflected concerns over rising unemployment and weak economic growth. However, it was tight vote, with policymakers voting 5-4 in favour of a cut.

The vote was equally close in February, when policymakers decided to keep rates at 3.75%.

After the February announcement, Bank governor Andrew Bailey said he expected inflation to be close to the Bank's 2% target from spring 2026 onwards, providing "scope" for further rate cuts.

However, the conflict in Iran has changed those expectations.

At its March meeting the Bank's monetary policy committee voted unanimously to keep rates at 3.75%, given expectations that the conflict would lead to higher inflation.

Some traders are now predicting two increases before the end of 2026, potentially taking rates to 4.25%.

The Bank's next interest rate announcement will be on Thursday 30 April.

The Bank also looks closely at what is happening to wages and unemployment.

The latest official figures show that regular pay in the UK grew by slightly more than inflation between December 2025 and February 2026.

Average annual growth in pay (excluding bonuses) during the three-month period fell to 3.6%, down from 3.8% recorded between between November and January.

That was the weakest rate since late 2020.

After taking inflation into account, it means wages grew by 0.4% for regular pay between December and February.

Annual average earnings growth for the quarter was 5.2% for the public sector and 3.2% for the private sector.

Meanwhile, separate ONS figures showed the estimated number of job vacancies in the UK fell by 29,000 to 711,000 between January and March.

The unemployment rate was 4.9% in the three months to February, down from 5.2% in the previous quarter.

The unexpected fall was partly due to fewer students looking for work. Those not actively seeking employment are not included in the jobless figures.

Early estimates suggest the number of payrolled employees recorded in March dropped by about 6,000 from the previous month, to 30.3 million.

The US and eurozone countries have also been trying to limit price increases,but both have lower central bank interest rates than the UK.

The inflation rate for countries using the euro was 2.6% in March, according to EU data, external — up from 1.9% in February.

Between June 2024 and June 2025, the European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 2%, where it has remained.

In the US, prices rose by 3.3% over the 12 months to March, the Department of Labor said. That was a sharp increase from 2.4% in February.

In March, the US Federal Reserve held its target interest rate at a range of 3.50% to 3.75% — the lowest level in three years.

The Fed has consistently come under attack from US President Donald Trump for not cutting rates.

Kevin Warsh - Trump's pick to lead the bank when current chairman Jerome Powell's four-year term ends in May - is expected to be more in favour of cuts.