UK inflation climbs to 3.5% on war-linked fuel prices no policy can reach

UK consumer price inflation rose to 3.5% in the year to September, up from 3.1% in August and the highest reading since October last year, the Office for National Statistics reported. The figure beat the 3.4% most economists had expected.

The cause is not domestic. Transport, particularly motor fuels, made the largest upward contribution. Average petrol prices rose 8.2 pence per litre between August and September, compared with a fall of 0.2 pence a year earlier, reaching 169.5 pence per litre — the highest since August 2022. Goods price inflation rose to 3.2%, up from 2.7% in August and the highest rate since September 2023.

Core CPI, which strips out volatile energy and food, ticked up to 2.8% from 2.6%. That matters because it suggests the fuel shock is not entirely contained at the pump.

The backdrop is the Iran war. Brent crude hit nearly $120 a barrel on March 9 and has not dropped below $100 since March 13. Analysts are now discussing $150 to $200 a barrel if the Strait of Hormuz stays effectively closed. The US is deploying three more warships and roughly 2,500 more marines to the Middle East as the war continues.

The figures cemented market expectations that the Bank of England will raise interest rates next month. That is a forecast, not a decision — the Bank has not yet acted.

A near-year-high inflation reading driven by war-linked fuel costs squeezes household budgets, hardens rate-hike expectations, and complicates the chancellor's Budget arithmetic. The underlying cause sits outside any domestic policy lever: no Budget measure controls the price of crude, and no interest-rate decision reopens the Strait of Hormuz.

The government can tax, spend, or borrow against the consequences of imported inflation, but it cannot set the price that is driving it. The Bank can raise rates into a supply shock, risking slower growth without touching the source. Both institutions are responding to a war they do not control.