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The ongoing conflict between the US, Israel, and Iran has already begun to influence the financial situation of households in the UK, affecting everything from fuel costs to mortgage rates. The extent and duration of these impacts depend significantly on how long the conflict persists and the speed at which disrupted supply chains and economies can stabilize.
One of the most immediate areas where people are noticing changes is at the fuel pump. According to the RAC, average petrol prices recently reached an 18-month peak of 140.6p per litre, marking an increase of nearly 8p since hostilities commenced. Similarly, diesel prices have surged by almost 17p to 159.2p a litre. Analysts explain that each $10 rise in crude oil prices typically translates into a 7p increase per litre of fuel. Oil prices have shown volatility, fluctuating in response to conflict developments and official statements, but sustained high prices could push petrol close to 150p per litre. While there is no shortage of fuel supply, driving organisations encourage minimizing unnecessary travel and adopting fuel-efficient driving habits to mitigate costs. Even for those who do not drive, increased fuel prices often trickle down into higher retail prices, as increased transport costs influence the price of goods like food.
Mortgage borrowers in the UK are also feeling the effects, but in the opposite direction. Several major lenders have raised their interest rates due to rising funding costs and the realization that base borrowing rates may not decline as earlier expected. Moneyfacts data shows that average two-year fixed mortgage rates rose from 4.84% to 5.10% between early March and the latest figures in mid-March, reaching their highest point since July last year. Five-year fixed deals have also become more expensive, now at levels not seen since April. This uncertainty has caused some lenders to withdraw over 500 mortgage products temporarily, although thousands remain available. Adam French, head of consumer finance at Moneyfacts, explains, “When lenders take the step of pulling deals rather than simply tweaking pricing, it often indicates that funding costs have moved too quickly for incremental changes to keep pace.”
Energy costs present a mixed picture for households. Thanks to the energy price cap set by Ofgem, there is some protection for gas and electricity prices in England, Wales, and Scotland, but this safeguard is temporary, running until July. While prices are due to fall in April under the cap, wholesale energy market fluctuations in the coming months will heavily influence future bills. Should wholesale costs remain high, consumers could see substantial increases over the summer. Energy Secretary Ed Miliband has stated, “if it’s necessary to intervene, we will,” though any government action will depend on the conflict’s financial impact. Those who rely on heating oil face a different challenge, as prices for oil—often stored in tanks at rural homes—have more than doubled since the war began, driven partly by panic buying. Emma Simpson, chief executive of Rural Action Derbyshire, notes, “We may be heading into spring, but anyone running low on oil right now doesn’t have the luxury of waiting for prices to fall.” The Competition and Markets Authority is monitoring for fairness in heating oil sales, ensuring transparency and fair terms between suppliers and buyers.
Overall, the broader economic effects remain uncertain. Although the Office for Budget Responsibility previously forecast UK inflation to settle around 2% in the coming years, those figures were established before the conflict escalated. Analysts now find such predictions less certain due to the rapid developments. However, unlike the previous inflation peak of 11.1% in October 2022 driven in large part by supply shocks from the war in Ukraine, the current situation lacks that same pressure on staple food commodities. Expectations for interest rates have also shifted. Where the Bank of England’s governor had earlier suggested potential rate cuts, market commentators now largely dismiss that possibility, anticipating that borrowing costs will stay steady or possibly rise. On a lighter note, the repercussions might even spill over into leisure choices, with potential increases in flight prices as jet fuel costs soar, leading to fewer affordable holiday options this year
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