How the Iran war affects your money and bills
Impact of the US-Israel-Iran Conflict on UK Finances
The escalating tensions between the United States, Israel, and Iran are already affecting the financial landscape for households in the UK. While President Donald Trump declared a ceasefire last week, the lack of a finalized agreement has sparked worries about prolonged economic consequences. A research group has predicted that the average working-age British family could face a financial burden of several hundred pounds this year due to the conflict’s ripple effects.
Rising Fuel Costs and Market Volatility
Drivers in the UK have seen a notable surge in fuel prices since the conflict began. Crude oil costs have climbed sharply, though they remain sensitive to developments in the war and statements from Washington. As of 13 April, the average petrol price stood at 158.27p per litre, up by over 25p since the war started. Diesel prices have also risen, reaching 191.5p a litre—an increase of nearly 49p from early March.
“The situation is highly volatile, and any relief will hinge on the outcome of peace discussions,” said Simon Williams, head of policy at RAC.
Higher fuel costs are expected to persist unless peace talks yield positive results. The RAC noted that while price hikes have slowed, the path to reductions depends on whether the Strait of Hormuz remains a key factor in the conflict’s trajectory.
Earlier this month, the rise in pump prices led to a disagreement between fuel retailers and the government. Retailers criticized officials for implying that companies were exploiting the situation, using “inflammatory language” to describe the price surge. Analysts suggest that each $10 increase in oil prices typically raises pump costs by around 7p per litre. Even if oil shipments resume through the Strait of Hormuz, consumers may not see immediate savings.
Mortgage Rates Under Pressure
As the conflict unfolds, mortgage rates have also shifted. Initially, there were expectations of declining rates, but that trend has reversed. Lenders are raising their charges, driven by higher funding costs and revised forecasts for base interest rates. According to Moneyfacts, the average two-year fixed rate has climbed from 4.83% in early March to 5.89% currently.
For longer-term mortgages, the average rate for five-year deals has increased from 4.95% to 5.77% over the same period. During times of economic uncertainty, lenders often reduce product offerings, leading to fewer options on the market. Moneyfacts reports that around 1,500 residential mortgage deals have disappeared, though over 6,000 remain available.
Energy Bills and the Price Cap
Despite the turmoil, households in England, Wales, and Scotland benefit from Ofgem’s energy price cap, which limits the cost per unit of electricity and gas for variable deals. This cap applies until July, but its scope is limited. Energy prices dipped in early April, yet the coming months will determine summer bills.
Cornwall Insight forecasts that, under the price cap for July to September, a typical dual-fuel household could spend £1,861 annually on energy, up from £1,641 at present. However, this projection may change. During the pandemic and the Ukraine invasion, the government had to intervene with the Energy Price Guarantee to cushion consumers from soaring costs.