How the Iran war affects your money and bills
How the Iran Conflict Impacts UK Finances
The escalating conflict between the United States and Iran has already begun to influence the financial landscape in the UK, affecting everything from fuel expenses to mortgage costs. Despite a ceasefire declared by President Donald Trump, ongoing negotiations have not yet yielded a resolution, leaving concerns about prolonged economic consequences. A think tank estimates that the average working-age British household could face a significant financial burden this year due to the conflict.
Transport Costs and Petrol Prices
Pump prices have risen sharply, prompting drivers to notice higher fuel costs. Crude oil prices have surged since the conflict began, though they remain sensitive to developments in the war and statements from the White House. According to the RAC, the average petrol price hit 158.27p per litre on 13 April, a 25p increase from the start of the conflict. Diesel prices have also climbed, reaching 191.5p a litre—a near 49p rise since March.
“The situation remains highly volatile, with outcomes hinging on the Strait of Hormuz,” said Simon Williams, RAC’s head of policy.
While the rate of price hikes has eased, reductions depend on the success of peace talks. A dispute between petrol retailers and the government erupted in early March, with firms accusing officials of implying they were exploiting the oil price surge. Analysts note that every $10 rise in oil prices translates to roughly 7p per litre at the pump. Even if shipments resume through the Strait of Hormuz, consumers may not see immediate relief.
Mortgage Rates on the Rise
Financial markets have responded to the conflict by adjusting mortgage rates. Previously, there was anticipation of falling interest rates for new fixed mortgages and variable rates. Now, lenders are raising rates rapidly, driven by higher funding costs and expectations of a stable base rate. Moneyfacts reports that the average two-year fixed rate has climbed from 4.83% to 5.89%, while five-year deals have increased from 4.95% to 5.77%.
Uncertainty has also led to a reduction in available mortgage products. Around 1,500 fewer residential deals are listed, though over 6,000 options remain. Lenders are advised to monitor market conditions closely, as the conflict continues to shape borrowing costs.
Energy Bills and Price Caps
Energy bills in the UK are partially shielded by the price cap introduced by Ofgem in England, Wales, and Scotland. However, this cap is temporary, ending in July, and does not apply universally. Energy costs dipped slightly in early April but could rebound as the wholesale market fluctuates. Cornwall Insight forecasts that, under the July-to-September cap, a typical dual-fuel household would pay £1,861 annually for energy, up from the current £1,641.
Historically, energy price spikes—such as those following the pandemic and Russia’s invasion of Ukraine—have required government intervention. The Energy Price Guarantee (EPG) was introduced to mitigate costs, and similar measures might be needed if the conflict persists.
