Impact of the Iran Conflict on UK Household Finances
The ongoing US-Israel conflict with Iran has already begun influencing the financial landscape for families in the UK, affecting everything from fuel expenses to mortgage terms. Despite a ceasefire announced by US President Donald Trump, talks between the two nations have stalled, leaving uncertainty about the long-term economic consequences. A think tank estimates that the average working-age household could face a significant financial burden this year due to the war’s ripple effects.
Petrol Costs Rising
Motorists have already observed a climb in fuel prices, driven by the sharp increase in crude oil costs since the conflict began. The motoring group RAC reported that petrol prices reached 158.27p per litre on 13 April, up by over 25p from earlier in the month. Diesel prices have surged to 191.5p a litre, marking a near-50p rise since March. This has resulted in a £14 increase for a standard 55-litre family car and a £27 rise for diesel.
“The price fluctuations are highly dependent on developments in the Strait of Hormuz,” said Simon Williams, head of policy at RAC. “Even if the situation stabilises, it may take time before costs start to ease.”
While the rate of price hikes appears to be slowing, experts warn that any reductions will hinge on the progress of peace discussions. The rise in oil prices also triggered a dispute between fuel retailers and the government earlier this month, with retailers criticizing the use of “inflammatory language” about profit margins. Analysts note that a $10 surge in oil typically leads to a 7p increase at the pump. Despite current supply levels, organisations are advising drivers to cut back on non-essential trips and adjust driving habits to save fuel.
Mortgage Rates Soar
Before the conflict, there was optimism about declining mortgage rates. However, lenders have now raised their rates sharply, citing higher funding costs and expectations of a stagnant base rate. The average two-year fixed rate climbed from 4.83% in early March to 5.89% as of now, according to Moneyfacts. Similarly, five-year rates have increased from 4.95% to 5.77% during the same period.
Economic instability has also led to a reduction in mortgage product availability. Moneyfacts reports there are about 1,500 fewer residential mortgage options on the market, though over 6,000 deals remain. Lenders have pulled some products off the shelves, limiting consumer choice during this period of uncertainty.
Energy Bills Under Pressure
While households benefit from Ofgem’s energy price cap in England, Wales, and Scotland, this protection is temporary. It applies to variable-rate customers until July, but future costs will depend on the wholesale energy market. Prices dropped in early April, yet the period of elevated costs is expected to push energy bills higher for millions.
Cornwall Insight forecasts that, under the July-to-September price cap, a typical dual-fuel household will pay £1,861 annually for energy, up from £1,641 currently. This projection could shift if the conflict’s outcome affects oil supply. The last major spike in prices, following the pandemic and Russia’s invasion of Ukraine, required government intervention through the Energy Price Guarantee (EPG), and similar measures may be needed again if costs remain elevated.
