UK households facing £2,400 financial hit from Iran war

UK households will have suffered a £2,400 financial hit, on average, from the Iran war by the end of 2027, new analysis shows.

The Centre for Economics and Business Research (CEBR) has calculated that the jump in inflation since the conflict began, and weaker wage growth, will knock £1,100 off the real income of the average UK household in 2026, and by a further £1,300 in 2027.

This adds up to a total of £70.4bn that will be wiped off UK households’ real disposable incomes by the Middle East conflict, according to the CEBR, an economic consultancy.

The economic shock from the closure of the Strait of Hormuz hits UK households through two channels. “The first is direct: higher energy costs feed straight into bills and into the price of almost everything else, so each pound of pay buys less,” explained the CEBR senior economist, Liam Daly.

“The indirect channel is slower but as important, running through monetary policy and the labour market.”

Before the Iran war began, the Bank of England had been expected to cut interest rates this year. Instead, borrowing costs have been left unchanged, with City traders expecting one rate rise by December.

The squeeze on real incomes from higher energy costs and steady interest rates will hit household spending power, hurting economic growth.

“A conflict fought thousands of miles away continues to bear on UK households, with real income erosion felt in the weekly shop, at the pump and on the energy bill. Until energy markets calm, the squeeze will persist,” Daly said.

Energy bills across Great Britain are scheduled to rise in October, after the regulator, Ofgem, decided to lift its quarterly price cap by 4%.

Last week, the Energy and Climate Intelligence Unit thinktank (ECIU) calculated that higher wholesale oil and gas prices since the start of the US-Iran war, on 28 February, will add an estimated £9.8bn to UK energy and road transport costs. UK gas and electricity users face paying an extra £190m for each week the conflict continues, the ECIU found.