How the Iran war affects your money and bills
How the Iran war affects your money and bills
Financial Impacts of the Conflict
The escalating tensions between the United States and Iran have already begun to ripple through the UK’s economy, influencing household budgets in multiple ways. Despite U.S. President Donald Trump’s recent declaration of a truce, ongoing negotiations between the two nations have stalled, sparking worries that the economic repercussions of the conflict could persist for months. A research institution has calculated that the typical working-age British household might face a significant financial burden this year due to the war’s effects.
Petrol Price Increases
UK drivers have observed a notable climb in fuel costs, driven by a sharp rise in crude oil prices since the conflict began. These prices fluctuate rapidly, responding to developments in the war and statements from the White House. As of 13 April, the average petrol price reached 158.27p per litre, marking an increase of over 25p since the conflict started. Diesel, meanwhile, hit 191.5p per litre, a jump of nearly 49p from March. This has led to a £14 rise in the cost of filling a 55-litre family car with petrol and a £27 increase for diesel.
RAC’s policy director, Simon Williams, highlighted that while the pace of price hikes is easing, any future declines will hinge on the progress of peace discussions. “The situation remains highly unpredictable, with the Strait of Hormuz playing a crucial role in determining fuel costs,” he noted. In early March, the surge in petrol prices sparked a dispute between retailers and the government, as businesses claimed the authorities were suggesting they were exploiting the crisis for profit. Analysts estimate that a $10 rise in oil prices translates to approximately 7p per litre at the pump. Drivers are advised that even if shipments resume through the Strait of Hormuz, cost reductions may take time to materialize.
Mortgage Rates and Borrowing Costs
The war has also disrupted the mortgage market, reversing earlier expectations of falling interest rates. Previously, there was optimism about a gradual decline in rates for new fixed-term mortgages, but now lenders are increasing their charges. This shift is attributed to rising funding costs and uncertainty about future base rates. According to Moneyfacts, the average two-year fixed rate has climbed from 4.83% to 5.89% since March, while five-year rates have risen from 4.95% to 5.77%.
During periods of economic instability, banks often reduce the availability of mortgage products, limiting consumer options. Moneyfacts reports that there are now roughly 1,500 fewer residential mortgage deals on the market, though over 6,000 options remain. The situation has also affected variable rates, with lenders adjusting their terms in response to the conflict’s financial strain.
Energy Bills and Price Caps
While the UK’s energy price cap has shielded some households from immediate spikes in gas and electricity costs, its temporary nature means long-term effects could still emerge. Ofgem’s cap, active in England, Wales, and Scotland, currently limits variable energy prices until July. Although costs dipped in early April, the upcoming months will depend on the wholesale energy market’s performance.
Energy analysts predict that high wholesale prices will likely lead to a steep increase in bills for millions of households, even if a ceasefire is reached. Cornwall Insight estimates that under the price cap for July to September, an average dual-fuel household would pay £1,861 annually for energy, up from £1,641 at present. This projection is subject to change, and the government may need to intervene again, as seen during the aftermath of the pandemic and Russia’s invasion of Ukraine, with measures like the Energy Price Guarantee.
