UK inflation could climb to around 4% by November as the Iran conflict drives up energy costs, according to forecasts from Capital Economics.
The consultancy expects higher oil and gas prices to feed through into household bills, with the Ofgem price cap projected to rise 15% in July and a further 3.5% in October.
Overall, this could add around 0.7 percentage points to inflation, which stood at 3.3% in March.
Recent data already points to mounting pressure, with motor fuel prices rising at their fastest rate in three years and heating oil inflation surging 95.3%—the highest since September 2022.
Petrol prices rose by an average of 8.6p per litre over the period, while diesel increased by 17.6p. More recent figures from RAC show a sharper jump since the start of the Iran conflict, with petrol up 24.7p per litre and diesel rising by 47.8p.
The ONS said the average price of petrol reached 140.2p per litre in March, the highest level since August 2024. Overall, fuel prices increased by 4.9% in the 12 months to March—the fastest annual rise since January 2023.
Ruth Gregory said the coming months will be “an uncomfortable ride” for the Bank of England as it weighs its policy response.
However, she added that weak economic growth and a fragile labour market should limit second-round inflation effects, meaning interest rates are likely to remain unchanged at 3.75% this year.
