LONDON, March 31 (Xinhua) -- Britain's inflation progress is derailed by price hikes in energy, transport and other commodities triggered by the conflict in the Middle East. Analysts argue that consumers and businesses -- already stretched under subdued economic performance -- will face further squeeze in the forthcoming storms.
A recent survey by the British Retail Consortium (BRC) showed that consumer confidence for the next three months collapsed in March following the escalation. Expectations for the state of the economy plunged to -53 in March from -30 in February, hitting a record low, while sentiment on personal finances fell to -17 from -6, also a record low.
Following a period of elevated inflation, price growth in Britain eased during 2024 and remained relatively moderate into early 2026. The country's consumer price index (CPI) rose by 3 percent year on year in February, unchanged from January, according to earlier data from the Office for National Statistics.
However, the figure for February just "represents the calm before the storm" for businesses, said Stuart Morrison, research manager at the British Chambers of Commerce (BCC).
"UK firms are particularly exposed to the economic impact of the crisis in the Middle East as our electricity prices are tightly tethered to global gas prices," he explained.
Harvir Dhillon, economist at the BRC, echoed the warning: "Heightened geopolitical tensions in the Middle East are very likely to increase energy and transport costs in the months ahead, creating additional pressures for consumers and businesses alike across the economy."
Dhillon added that if commodity price increases are sustained, inflation will not fall to the Bank of England's (BoE) 2-percent target this year.
Since the Middle East conflict began, Brent crude has largely stayed above 100 U.S. dollars per barrel, rising more than 50 percent from pre-conflict levels. The Dutch TTF benchmark, a key reference for European gas supply contracts, has almost doubled the level before the conflict.
The spike in energy prices "is set to worsen cost pressures for UK businesses, which already face the highest industrial energy costs in the G7," said Anna Leach, chief economist at the Institute of Directors.
In response, the BoE's Monetary Policy Committee (MPC) voted unanimously on March 19 to maintain the bank rate at 3.75 percent, citing the inflationary effect of rising energy costs. The committee expected CPI inflation to be close to 3.5 percent in March, almost 0.5 percentage points higher than expected in the February Report.
A recent OECD forecast sharply raised its outlook for Britain's inflation in 2026 by 1.5 percentage points to 4 percent, double the BoE's target. David Bharier, head of research at the BCC, said the organization anticipates no near-term rate cuts, which could hinder businesses seeking to borrow for investment.
The MPC is also alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, noting that the risk increases the longer higher energy prices persist.
"Higher oil prices will not just feed through to petrol pumps -- they also drive up the cost of food and other essentials," warned the Resolution Foundation, an independent British think tank.
With energy prices still around 60 percent higher than in 2021, the foundation suggested the government immediately build the infrastructure for a social tariff for energy, which targets support for the lowest-income households by offering a lower per-unit rate before the pressure hits.
William Ellis, senior economist at the Institute for Public Policy Research, added that the government should be prepared to intervene directly in energy markets, whether by capping costs or other fiscal measures, and accelerate the rollout of renewables to reduce the country's vulnerability to future shocks. ■