UK inflation regular however consultants warn of cost-of-living ‘twist’ in months forward

Experts have warned of another “twist” to the cost-of-living story in the months ahead, as war in the Middle East is set to send energy bills soaring.

The rate of Consumer Prices Index (CPI) inflation has been gradually easing back towards the Bank of England’s two per cent target level since last summer.

Some analysts are expecting CPI to have held relatively steady in February, or dipped slightly, from the three per cent level recorded in January.

Official figures for last month will be published on Wednesday.

Economists for Deutsche Bank and Pantheon Macroeconomics said they are anticipating CPI to hold steady at three per cent in February, with lower fuel and services inflation being offset by higher clothes prices and air fares.

Edward Allenby, senior economist for Oxford Economics, said he thinks CPI inflation fell to 2.8 per cent in February, largely thanks to a predicted fall in petrol prices and slower inflation in the services sector.

Analysts for Barclays said they are expecting the headline rate to dip to 2.9 per cent, also partly because of lower pump prices during the month.

But Sanjay Raja, Deutsche Bank’s chief UK economist, said the inflation outlook has “rarely been more uncertain than it is now”.

He wrote in a research note: “We expect the UK’s disinflation story will take another twist on its (eventual) way down to target.

“The good news is that CPI is still expected to slide down in the coming months.

“The bad news? Higher energy prices appear poised to lift CPI meaningfully over the summer, adding yet another hump in the inflation profile.”

Economists have been ripping up previous projections in recent days and warning that the US-Israel war with Iran has muddied the outlook for the economy.

The Bank of England said on Thursday that recent increases in wholesale energy costs would delay the return of CPI inflation to target, as it was already seeing higher fuel prices.

It is now expecting inflation to be around three per cent in the second quarter of 2026, up from the 2.1 per cent that had been forecast in February.

The central bankers stressed that the situation is volatile and events over the next six weeks could shed light on the scale of the disruption and impact on prices.

Economists have weighed in with their own projections of where inflation could go if things persist.

Mr Allenby said he is now expecting CPI inflation to exceed four per cent during the second half of 2026.

“Under our updated assumptions, we now anticipate a much sharper rise in petrol prices, while higher wholesale gas prices cause a 19 per cent increase in the Ofgem energy price cap in July,” he said.

Pantheon Macroeconomics agreed that, if the latest spike in gas prices is sustained, then CPI could be headed to four per cent later this yar.