How the Iran war affects your money and bills
How the Iran War Influences Your Budget and Expenses
The ongoing conflict between the United States and Iran has already begun to ripple through the UK economy, affecting everything from fuel costs to housing finance. Despite President Donald Trump declaring a pause in hostilities last week, talks between the nations stalled without a resolution, fueling worries about prolonged financial repercussions. A research group has projected that the typical working-age British household might face additional costs of several pounds this year due to the war’s economic fallout.
Fuel Costs and Transportation
Consumers have seen fuel prices climb significantly, with drivers reporting higher expenses at the pump. Crude oil prices have surged since the conflict began, though their fluctuations remain tied to the war’s progression and statements from Washington. The RAC reports that petrol averaged 158.27p per litre on 13 April, marking a 25p increase since the conflict started. Diesel prices have climbed to 191.5p a litre, up nearly 49p from early March.
“The situation remains highly unpredictable, with the Strait of Hormuz serving as a critical factor in pricing trends,” said Simon Williams, head of policy at RAC.
Despite a recent slowdown in price rises, experts warn that further reductions depend on the success of peace negotiations. In early March, the sharp uptick in fuel costs sparked a dispute between retailers and the government, with businesses accusing officials of using “inflammatory language” to imply they were exploiting the price surge. Analysts estimate that a $10 rise in oil prices translates to a 7p increase per litre at the pump.
Mortgage Rates and Housing Finance
Before the conflict, there was optimism about declining mortgage rates. Now, that trend has reversed, with lenders adjusting rates due to higher funding costs and revised expectations for the base borrowing rate. Moneyfacts notes that the average two-year fixed rate has climbed from 4.83% in March to 5.89% currently. Shorter-term deals have seen the most dramatic increases, with five-year rates rising from 4.95% to 5.77% over the same period.
During economic uncertainty, lenders have withdrawn products from the market, narrowing options. Moneyfacts reports that around 1,500 fewer residential mortgage deals are available, though over 6,000 options remain. This shift has impacted both new and variable-rate mortgages, pushing costs higher for many borrowers.
Energy Bills and Consumer Costs
While energy bills are shielded by Ofgem’s price cap in England, Wales, and Scotland, the coverage is temporary and not universal. The cap limits the maximum price per unit of energy for variable deals until July. Although prices dipped in early April, future trends on the wholesale market will shape summer bills. Cornwall Insight forecasts that, under the July–September price cap, an average household using both gas and electricity could pay £1,861 annually, up from £1,641.
Should a ceasefire endure, it might ease price peaks. However, if the conflict continues, energy costs are expected to rise sharply. This scenario mirrors past crises, such as the pandemic and Ukraine invasion, where the government introduced the Energy Price Guarantee (EPG) to support households.