The ongoing conflict involving Iran and its implications for global stability are beginning to ripple through the finances of everyday Britons. From soaring petrol prices to the rising costs of mortgages and energy, the effects are already being felt, and how long they persist will largely depend on the war’s duration and the resilience of supply chains.
Fuel Prices on the Up
Motorists across the UK are noticing an alarming trend at the petrol pumps. As of Friday, average petrol prices surged to 150.11p per litre, marking an increase of 17.3p since the onset of hostilities. Diesel prices have spiked even more dramatically, climbing 35.3p to reach 177.68p per litre, according to figures from the RAC.
This spike has ignited a heated debate between fuel retailers and the government, with accusations flying about potential profiteering from the rising oil prices. Analysts suggest that for every $10 rise in oil prices, UK pump prices can increase by approximately 7p per litre. The volatility in crude oil prices is expected to continue as the situation evolves, influenced by ongoing commentary from the White House and developments on the ground.
While there is currently ample fuel supply, motoring organisations advise drivers to reduce non-essential trips and adopt more efficient driving habits to help conserve fuel. Even those who do not drive regularly will likely feel the pinch; higher transport costs for goods can trickle down to increased prices for everyday items, particularly food.
Mortgage Rates Climbing
Prior to the outbreak of conflict, there were optimistic expectations for a gradual decline in mortgage rates. However, lenders are now raising rates in response to increased funding costs and a revised outlook for the base borrowing rate.
The average rate for a two-year fixed mortgage has jumped from 4.83% in early March to 5.75%, the highest level recorded since March 2024, according to Moneyfacts. Similarly, the average rate for a five-year fixed mortgage has risen from 4.95% to 5.69% during the same timeframe.
This economic uncertainty has led lenders to withdraw various mortgage products from the market, resulting in a reduction of 1,620 residential mortgage offerings. Despite this, more than 6,000 options remain available. Adam French, head of consumer finance at Moneyfacts, noted that when lenders opt to pull products rather than simply adjusting prices, it often indicates rapid changes in funding costs that require more immediate action.
Energy Bills and Heating Oil Costs
Households are currently shielded from some energy price shocks due to the price cap enforced by Ofgem, which regulates gas and electricity rates in England, Wales, and Scotland. However, this cap is time-limited and does not encompass everyone. The maximum price for each unit of energy, applicable to those on variable tariffs, is set to remain until July, with a decrease anticipated in April.
The trajectory of wholesale energy prices will be critical in determining household energy bills for the summer and beyond. Cornwall Insight’s latest forecasts predict that a typical dual-fuel household could see its annual bill rise from £1,641 to £1,934 under the price cap for the period from July to September. This projection is, however, speculative and subject to change.
For those relying on heating oil—often used in rural communities—there are no caps to help manage costs. The Prime Minister has recently announced a £53 million support package aimed at assisting vulnerable users of heating oil, which will be distributed through local authorities. The Competition and Markets Authority is also scrutinising the fairness of pricing practices in this sector, ensuring that customers receive the agreed-upon rates.
Inflation and Interest Rate Outlook
At the beginning of March, inflation in the UK was expected to hover around the Bank of England’s target of 2% over the next five years. However, the recent escalation of conflict has thrown these predictions into disarray. Analysts now anticipate an uptick in inflation rates, though they do not expect to see a return to the peak of 11.1% witnessed in October 2022.
The Bank of England’s primary goal is to stabilise inflation through interest rate adjustments. After maintaining the Bank rate at 3.75% in February, there is a growing consensus among analysts that the next move may be an increase rather than a decrease. While this could lead to higher borrowing costs, it may also present opportunities for savers, albeit with reduced purchasing power due to rising living costs.
Why it Matters
The unfolding situation in Iran is not just a distant geopolitical issue; its ramifications are increasingly evident in the everyday financial realities faced by UK consumers. Higher petrol prices, escalating mortgage rates, and potential increases in energy bills are all part of a larger picture that could strain household budgets. As economic uncertainty looms, understanding these impacts becomes crucial for individuals and families striving to navigate an ever-changing financial landscape. The ripple effects of international conflicts remind us that global events have local consequences, and staying informed is key to making sound financial decisions in challenging times.
