How the Iran war affects your money and bills
Impact of the Iran Conflict on UK Finances
The ongoing US-Israel-Iran conflict has already begun to influence household budgets in the UK, affecting areas such as fuel expenses and mortgage costs. While US President Donald Trump declared a ceasefire last week, talks between the two nations failed to reach a consensus, fueling worries about prolonged economic consequences. A think tank estimates that the typical working-age British household could face financial losses of over £100 this year due to the conflict.
Rising Fuel Prices
UK drivers have observed a notable increase in pump prices, driven by a sharp rise in crude oil costs since the war’s outbreak. The motoring organisation RAC reports that the average petrol price hit 158.27p per litre on 13 April, a jump of more than 25p from the start of the conflict. Diesel prices have climbed to 191.5p a litre, up nearly 49p since early March. This has resulted in an additional £14 for a full tank of petrol and £27 for diesel in the average family car.
“The situation remains highly volatile, with outcomes heavily reliant on developments in the Strait of Hormuz,” said Simon Williams, head of policy at RAC.
Although pump price growth is slowing, reductions are contingent on the success of peace negotiations. In early March, the surge in fuel costs sparked disputes between petrol retailers and the government, with retailers criticizing the use of “inflammatory language” regarding profit margins. Analysts note that a $10 increase in oil prices typically raises pump costs by about 7p per litre. Even with smooth oil shipments through the Strait of Hormuz, drivers may need patience for any relief.
Impact on Mortgage Rates
Before the conflict, there was optimism about declining mortgage rates in the UK. However, lenders have since raised interest rates rapidly, driven by higher funding costs and expectations of a stable base rate. The average two-year fixed rate rose from 4.83% to 5.89% in just a few weeks, according to Moneyfacts. Similarly, five-year deals increased from 4.95% to 5.77% over the same period.
During economic uncertainty, mortgage options often shrink. Moneyfacts reports that around 1,500 fewer residential mortgage products are available now, though over 6,000 deals remain. This trend underscores the sensitivity of financial markets to global tensions, with borrowers facing steeper borrowing costs.
Energy Bills and Price Caps
UK households benefit from a price cap on gas and electricity, set by energy regulator Ofgem. This cap, valid until July, limits the maximum unit cost for those on variable deals. Despite this, energy prices have dipped at the start of April, but the coming months will determine future bills. Cornwall Insight forecasts that under the July-September price cap, a dual-fuel household would pay £1,861 annually, up from £1,641 currently.
Historically, sharp price spikes—such as those following the pandemic and Russia’s invasion of Ukraine—have prompted government intervention. The Energy Price Guarantee (EPG) was introduced to cushion consumers during such crises, but its effectiveness now depends on the trajectory of the wholesale energy market.
