UK inflation remained at 3% in February 2026, according to the Office for National Statistics (ONS), but rising energy prices linked to Middle East instability are expected to push inflation higher in the coming months.
The latest consumer price index (CPI) data shows that falling petrol prices helped offset increases in clothing and household goods, keeping the annual rate unchanged from January.
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Retail and economic analysts warn that this stability may be temporary. Disruption to global oil and gas supply chains has increased wholesale energy costs, raising concerns about renewed inflationary pressure across the UK economy.
Energy prices drive inflation outlook
Energy prices are emerging as the main driver of UK inflation risk in 2026. Global oil prices have risen sharply following escalating tensions in the Middle East, with supply routes affected and fuel costs increasing.
Economists expect these pressures to feed into higher household energy bills and transport costs later in the year. Forecasts suggest inflation could rise to around 3.5% by mid-2026 if current conditions persist.
Industry commentary from the British Retail Consortium (BRC) highlights the immediacy of the risk. One expert noted that “retailers are already seeing cost pressures build from higher shipping and energy prices”, adding that these costs are likely to pass through to consumers in the near term.
The Office for Budget Responsibility (OBR) has also warned that recent increases in oil and gas prices have made the inflation outlook “particularly uncertain”, reflecting the speed of geopolitical developments.
Consumer prices and sector impacts
The February CPI data shows mixed trends across categories. Clothing and household goods recorded price increases, while fuel prices declined, balancing the overall rate.
Food inflation has eased in recent months, but this trend may reverse. Supply chain disruptions, higher fertiliser costs and increased maritime fuel prices are expected to raise food production costs.
Retail sector representatives caution that margins remain under pressure. A BRC expert stated that “any sustained rise in input costs will limit retailers’ ability to absorb price increases”, pointing to a likely impact on shelf prices.
Manufacturing data supports this view, with input costs rising at the fastest pace in decades as energy and raw material prices increase.
Monetary policy and market expectations
The Bank of England is monitoring inflation closely as it balances price stability with economic growth risks. Interest rates have been held steady, but markets now expect possible rate increases later in 2026 if inflation accelerates.
Rising inflation expectations among households and businesses are adding to the challenge. Surveys show a sharp increase in short-term inflation expectations, reflecting concerns about energy costs and the broader cost of living.
Central bank officials have signalled that further action may be required if inflation becomes more persistent. At the same time, policymakers recognise that energy-driven inflation is harder to control through interest rates alone.
Retail analysts echo this uncertainty. One BRC comment notes that “geopolitical instability has quickly changed the inflation outlook”, underlining how external shocks are reshaping expectations for prices and consumer demand.
Outlook
While UK inflation remains stable at 3% for now, current data predates the full impact of recent geopolitical events. With energy prices rising and supply chains under pressure, businesses and policymakers are preparing for a renewed period of inflation volatility in 2026.
