UK inflation to show first energy shock impact; March figures due Wednesday

Britain’s March inflation figures, due next Wednesday, will show the first impact of soaring energy prices, setting the tone for a faster pace of price growth in the months ahead. Having sat at 3 per cent for the past two months, consumer price index (CPI) inflation is likely to rise closer to 3.5 per cent in the second quarter, and sit somewhere between those two figures in March’s data.

Medium-term forecasts remain highly uncertain, however, as energy markets and geopolitics continue to shift. Capital Economics downgraded its price growth predictions last week following the US/Iran ceasefire. The consultancy now expects CPI inflation to peak at 4 rather than 4.5 per cent next February, marking a slightly lower trajectory than previously anticipated.

Even so, risks remain tilted to the upside. Brent crude oil is still at around $100 a barrel and the Strait of Hormuz remains blocked, factors that could keep energy costs elevated and complicate the inflation outlook. The March release will offer an early read on how those pressures are feeding through to consumer prices, ahead of what forecasters suggest could be a firmer inflation profile in the second quarter.