Markets reassess interest rate path as CPI ticks up
UK inflation rose in March, keeping price growth above the government’s 2% target and complicating the outlook for interest rates and mortgage costs.
The Office for National Statistics said the Consumer Prices Index (CPI) increased by 3.3% in the 12 months to March 2026, up from 3% in the year to February. On the month, CPI rose by 0.7%, compared with a 0.3% rise in March 2025.
Fuel was the biggest driver of the increase in the annual rate. Motor fuel prices rose sharply after the start of the US-Israeli war on Iran, which has pushed oil prices higher and tightened supplies as the Strait of Hormuz is disrupted. Clothing was the largest downward contributor, partly offsetting the rise.
Core CPI, which excludes energy, food, alcohol and tobacco, eased slightly to 3.1% from 3.2%. The CPI goods annual rate rose from 1.6% to 2.1%, while the CPI services annual rate increased from 4.3% to 4.5%, indicating continued domestic price pressures.
The Consumer Prices Index (CPI) rose by 3.3% in the 12 months to March 2026, up from 3.0% in the 12 months to February 2026.
— Office for National Statistics (ONS) (@ONS) April 22, 2026
Read more on the March inflation figures ➡️ https://t.co/IkzAuUmbLX pic.twitter.com/aesupoNkFJ
For mortgage brokers, the data will be read alongside the Bank of England’s recent decision to keep rates unchanged, while warning that a prolonged conflict and further disruption in energy markets could force borrowing costs higher to prevent inflation becoming embedded.
“Inflation is proving far more stubborn than any of us could have anticipated at the start of the year,” said Matt Harrison (pictured right), customer success director at Finova Broker. “With tensions in Iran ongoing, we’re likely to see a rise in the base rate next week, ushering in a far longer period of elevated rates than many were hoping for and putting continued pressure on affordability.
“We’re already seeing a more cautious approach from both lenders and customers alike. That said, the market is adapting. Brokers are becoming more creative in structuring deals, and lenders are refining products to support borrowers navigating higher costs.
“The key message is that while stability would have been welcome, resilience and flexibility remain essential in the current environment.”
However, Nathan Emerson (pictured right), chief executive of trade body Propertymark, said stubborn inflation was likely to weigh on sentiment and activity in housing until price growth moderates. “Today’s news will be a disappointing, yet widely anticipated outcome for many consumers,” he said.
“Until inflation is reduced to more sustainable levels, it will have a wider impact on the UK’s housing market. With governments across all nations pursuing ambitious housing targets, there will be a keenness to ensure inflation is kept as low as possible to empower future investment in accommodation and that it can deliver consumer value.
“At this point, it’s important not to be pessimistic, nor overconfident; instead, we must be finely tuned to being genuinely realistic. The housing sector is a key indicator of wider financial health and an extremely important sector to see survive and thrive, but there are important considerations ahead.”
Economists had previously expected inflation to fall more sharply in April as budget measures, including energy bill cuts, take effect. However, forecasters now expect price growth to remain higher for longer, with knock-on effects for mortgage pricing, affordability tests and borrower budgets.
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