UK inflation increased to 3.3% in March, driven primarily by rising energy costs linked to the ongoing conflict in the Gulf region, according to the Office for National Statistics. The CPIH measure, which includes owner-occupiers’ housing costs, rose to 3.4%.
Transport costs were the main driver of the increase, rising by 4.7% – the highest level since late 2022 – as the blockade of the Strait of Hormuz and damage to production facilities pushed up petrol and diesel prices. Housing and household services costs rose to 4.3%, whilst food inflation increased to 3.7%.
The increases were partially offset by a 0.8% reduction in clothing and footwear prices during the year.
Property market implications
The inflation data has significant implications for the UK property sector, with the Bank of England now expected to maintain the current Bank Rate rather than implementing the cuts that were anticipated in recent months. The Monetary Policy Committee is scheduled to meet on 30th April to assess the situation.
John Phillips, CEO of Just Mortgages and Spicerhaart, noted that the 2% inflation target now appears distant, with inflation expected to continue rising. He added that buyer registrations, valuation requests and mortgage appointments remain positive, with remortgages continuing to drive activity alongside purchase transactions.
The mortgage market has already shown signs of strain, with nearly 1,000 products withdrawn since the conflict began, according to Daniel Austin, CEO of ASK Partners. He indicated that investment activity is likely to remain focused on income-driven segments such as build-to-rent, co-living, logistics, self-storage and data centres, where undersupply continues to support demand.
The broader housing market outlook faces additional uncertainty as the full economic impact of the Middle East conflict has yet to materialise in the data.
Energy price impact ahead
Rob Morgan, Chief Investment Analyst at Charles Stanley Direct, part of Raymond James Wealth Management, warned that the current figures represent only the initial consequences of the energy price spike. The impact on household gas and electricity bills will not be felt until July when the Ofgem price cap is set, with further increases in goods and services costs anticipated.
Morgan suggested that if the conflict continues and energy exports remain disrupted, central banks worldwide may be inclined to raise interest rates. Should second-round inflation effects emerge, the Bank of England may feel compelled to follow suit.
Austin emphasised that a sustained downward path for inflation, which appears increasingly unlikely, remains the key catalyst for unlocking stalled development activity. Until greater clarity emerges, both developers and investors are expected to maintain defensive positions, with capital favouring disciplined, income-focused strategies.
The ONS figures offer the first comprehensive view of how higher energy costs are affecting the economy, with further pressure expected as these increases feed through to wages and other sectors. The property industry will be closely monitoring the Bank of England’s decision at the end of April for signals on the direction of mortgage rates and lending conditions in the coming months.
