CBI Warns Iran Conflict Will Push UK Inflation Higher and May Delay Rate Cuts

UK headline inflation has already climbed from 3.0 per cent in February to 3.3 per cent in March, according to the Office for National Statistics, with higher fuel costs linked to the Iran conflict the primary driver. The CBI’s principal economist Martin Sartorius posted a stark assessment on X, warning that the pressure is not yet over.

Martin Sartorius, CBI principal economist, said: “Inflationary pressures are likely to firm over the next few months, reflecting the ongoing impact of the Iran conflict on energy bills and some passthrough to domestic prices.” The warning follows wholesale UK gas prices rising by around 70 per cent in a single week in early March, after disruption to shipping through the Strait of Hormuz and reduced LNG supply from Qatar. Oxford Economics estimates the Strait of Hormuz disruption could add around 0.4 percentage points to UK inflation — compared with about 0.3 percentage points for the euro area — leaving the UK more exposed than many of its neighbours.

The figures show the pressure is spreading beyond the pump. Ofgem has confirmed a 13 per cent rise in the domestic energy price cap from July, taking a typical dual-fuel household bill to its highest level in two years. Energy consultancy Cornwall Insight forecasts a further rise of around 2 per cent beyond July if wholesale prices hold at current levels, though that remains a forecast rather than an official figure. Petrol peaked at around 159.5p per litre and diesel at 191.5p per litre during the conflict-related spike; RAC data show current prices have eased slightly but remain elevated, with a 55-litre diesel fill-up costing roughly £97.22 — up about £18.91 since late February.

For Kent households, the impact is arriving on multiple fronts at once. Higher energy bills, dearer petrol on the county’s motorways and A-roads, and rising mortgage costs are converging. Average two-year fixed mortgage rates rose from about 4.83 per cent in early March to a peak of 5.90 per cent on 12 April before easing to around 5.61 per cent by mid-June, the figures from Moneyfacts show. The Bank of England estimates that borrowers moving to new deals face average monthly payment increases of around £80 over the next three years. Kent’s freight and logistics sector — heavily dependent on road fuel and port access through Dover and Folkestone — faces higher operating costs from both elevated pump prices and increased bunker fuel costs tied to the same global energy disruption.

Markets have already revised their expectations. At one point, traders placed only a 50 per cent probability on even a single 0.25 percentage point Bank Rate cut in 2026, down from a position where two cuts had been fully priced in, according to Reuters using interest rate futures data. The Bank of England’s Monetary Policy Committee has held Bank Rate steady, citing Iran-related energy price risks as a key factor. Some analysts suggest UK inflation could peak between 3.5 per cent and 4 per cent in 2026, though a severe adverse scenario could push it as high as around 6 per cent — still well below the 11.1 per cent peak recorded in October 2022.

Consumer groups and opposition politicians have argued that another energy-driven surge deepens the cost-of-living crisis and called for stronger energy market regulation and faster investment in domestic renewables to reduce the UK’s vulnerability to overseas conflicts. HM Treasury and the Bank of England maintain that monetary policy will remain data-driven and that targeted support can help households while keeping inflation expectations in check.

Key information

• Energy bills: Ofgem’s 13 per cent price cap rise takes effect in July 2026 — check your current tariff and contact your supplier about options before the change
• Bill support: Kent residents on low incomes can contact their local Citizens Advice or district council (including Medway, Canterbury, Thanet and Dover) about the Household Support Fund and local welfare assistance
• Mortgages: Anyone due to remortgage should monitor fixed-rate deals closely given the possibility that Bank Rate stays higher for longer than previously expected — Moneyfacts publishes daily rate comparisons