Inflation remains at 3% in February but is expected to jump in the months ahead

If costs rise too rapidly, this could push the Bank of England to increase interest rates.

While UK inflation held steady at 3% in the year to February 2026 (the Office for National Statistics today revealed), consumers must brace themselves for costs to rise more rapidly in the coming months as conflict in the Middle East continues.

Importantly, it should be noted that these latest figures were recorded before joint US and Israeli airstrikes on Iran began on 28 February 2026 and were kept low by a 4.6% decline in overall motor fuel prices year-on-year.

However, it’s likely costs will climb at a faster rate going forwards as the war in Iran disrupts global oil and gas supplies – not only impacting household fuel and energy bills but also driving up business expenses. Indeed, according to the RAC, the average price of petrol has risen by 15.7 pence per litre since the start of the conflict, while the average price of diesel leaped by a more substantial 31.5 pence per litre.

As such, the Bank of England has suggested inflation will be delayed in returning to its 2% target and could reach 3.5% later this year.

Lenders expect base rate to rise

If inflation was to accelerate in the months ahead, this could cause the Bank of England to raise the UK’s central interest rate (also known as the ‘base rate’) to get it back under control. But, “even just one 0.25% hike could push mortgage rates higher,” warned Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk.

The uncertainty has already seen more than 1,700 products pulled from the mortgage market since 9 March 2026. While some have returned, Eastell explained that they now charge higher rates as lenders are expecting the base rate to rise this year. This has led the average two-year fixed mortgage rate to jump from 4.84% at the start of the month to 5.56% this morning and the average five-year fixed rate rise from 4.96% to 5.54% over the same period.

This will no doubt disappoint the roughly 1.8 million borrowers due to refinance this year – particularly those coming to the end of a cheap five-year fixed deal. “Homeowners should prepare themselves for higher-than-expected costs,” said Eastell, adding that “if they lock into another five-year term, they could see their monthly repayments spike by over £380”.

“Borrowers have the option of securing a new deal typically up to six months before their current rate expires, [which] may be crucial for those who are concerned about rising costs. This also avoids borrowers slipping onto their revert rate, which would add over £630 per month on average, an amount that many may not be able to afford,” she continued.

‘Double-edged sword’ for savers

Meanwhile, Eastell said the ongoing volatility is a “double-edged sword” for savers.

“Stubborn inflation could slam the brakes on rate cuts, or even prompt hikes which could deliver short-term boosts to savings returns. This relief is short-lived [as], if inflation stays elevated, it will quickly erode ‘real’ returns and chip away at the true value of savers’ cash,” she explained.

Despite the Moneyfacts Average Savings Rate currently sitting above inflation (at 3.39%) and there being more than 1,600 savings accounts that can outpace the rate at which costs are rising, Eastell urged savers to hunt for the most competitive returns as “settling for average won’t cut it”. At the time of writing, the top easy access savings account (Tembo Money’s HomeSaver) pays 4.75% AER (inclusive of a 1.75% bonus for 12 months).

With the end of the tax-year fast approaching, savers may also find that ISAs offer a competitive return as providers try to encourage people to use their £20,000 allowance before it automatically resets once the new tax-year begins (on 6 April). And, with the cash ISA limit set to be cut to £12,000 for under-65s from April 2027, it could prove crucial for savers to maximise their contributions now, as well as in the months ahead.

“Providers will be continuing to compete for investors’ new cash for weeks after the deadline, meaning it’s worth tracking the top returns beyond April,” Eastell reminded.