Emeritus Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm

UK inflation jumped to 3.3% in March from 3% in February, with the expectation that this will rise further in the coming months. Only months ago, it appeared that policymakers had tamed the inflation beast. But the rules of the game have changed, exposing the UK’s vulnerability to external pressures, and the path back to the 2% inflation target now looks increasingly uncertain.

Rising oil and gas prices are once again feeding into the cost base of the UK economy. Transport, manufacturing and logistics are feeling the impact first, but it does not stop there. Higher input costs are gradually passed through, meaning broader price increases over time. This is how inflation becomes sticky.

Even with a quick resolution, there would be no sharp drop in inflation. Costs already absorbed by firms take time to unwind, and pricing behaviour tends to adjust slowly on the way down.

The concern is that the UK may be drifting towards a difficult combination of weak growth and persistent inflation. Economic activity remains subdued, yet price pressures are not fading. Murmurs of stagflation are resurfacing again.

The Bank of England’s Monetary Policy Committee makes its decision on interest rates next week, but anything other than a hold would be a monumental shock. With inflation forecast to rise further, it is clear why policymakers are in no position to cut rates any time soon. Less obvious, perhaps, is why they are also unlikely to raise them.

A path of monetary tightening was (rightly) pursued in 2022 and 2023 as policymakers battled the impact of the Russian invasion of Ukraine and a global energy crisis. Supply-side constraints are once again causing a strain. But the key difference now is on the demand side. As the economy emerged from lockdown, a surge in demand increased activity in the economy, driving up prices in energy and other sectors.

That is not the case this time around. Economic growth remains subdued, business investment cautious, and household spending constrained. The inflationary pressures the economy faces now are external and transitory, not structural. The Bank of England is aware of this and is unlikely to increase rates at all — unless there is a material escalation on the horizon.