Cost of Trump’s war in UKJ: From energy bills to interest rates, how Middle East conflict is hitting Britons
Donald Trump’s war on Iran has thrown global financial markets and energy prices into turmoil and sparked fears of a new cost of living crisis in the UK.
Chancellor Rachel Reeves this week warned that economic challenges from the conflict in the Middle East could be “significant” as global oil and gas prices rise, affecting drivers filling the pumps and potentially rising domestic energy bills later this year.
Speaking to MPs on Tuesday, the chancellor promised contingency planning would continue for energy bill support “for those who need it most”, particularly if the current energy price cap expires at the end of June, in response to calls for the government to step in.
It comes after Sir Keir Starmer admitted he told his senior team they should not be lulled into a “false sense of comfort” by thinking the war launched by the US and Israel on February 28 would “end quickly and early”; This brings fears that the worst is yet to come for UK households.
Commentators have revived the term “Trumpflation” as the fluctuating rises and falls in oil and gas prices threaten a new inflation shock for UK households, with Britons facing increases in fuel bills, the cost of their weekly groceries or when agreeing a mortgage. The term was first coined by economists concerned about the inflationary potential of Trump’s economic policies as the US president approached his first term in office.
Under, Independent Let’s take a look at what all this means for Britons.
Gasoline and diesel prices
New figures from the Department for Energy Security and Net Zero this week showed drivers face a fresh blow as petrol and diesel prices rise again.
The average pump price for a liter of unleaded petrol in the UK was 144.2p on Monday, up 3.9p on the week and up 12.0p since March 2, figures show. This is the highest price for unleaded gasoline since July 2024.
Meanwhile, the average liter price of diesel stood at 166.9 points on Monday, up 8.1 points on the week and 24.7 points since March 2; this was the highest diesel price since March 2023.
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In response to initial US attacks, Iran effectively blockaded the Strait of Hormuz, a key waterway for global oil supplies.
The Competition and Markets Authority is being given new powers to stop price gouging as bills soar and fuel duty is set to rise in September.
energy bills
The average annual household energy bill is expected to rise by £332 in July.
But in a statement to the House of Commons on Tuesday, Ms Reeves said millions of people would get no help with rising energy costs because Labor was prepared to offer targeted support rather than universal support.
The Chancellor has hit out at the last Conservative government’s provision of “blanket” support following Russia’s attack on Ukraine, which he said cost tens of billions of pounds.
interest rates
The Bank of England was on track to cut interest rates soon but then the first attacks began in the Middle East and days later the decision was made to hold firm at 3.75 per cent.
The next meeting is on April 30 and it is unclear what will happen.
Money markets reacted strongly, with two-year bond yields rising enough to bet on four rate hikes; but this has never been considered a serious possibility by economists; Some analysts are still predicting a possible rate cut later in the year.
Two areas that are currently changing in relation to interest rates are mortgages (more on these below) and savings; We see some better deals here, with rates above 4 percent easily within reach, both because of the possibility of higher interest rates for longer periods of time and because of the timing being just before the end of the tax year.
Inflation
The exact impact of the war on Britain’s overall inflation is more difficult to estimate; This is partly because the figures are backward-looking and economists have already revised their forecasts for late 2026.
Inflation remained steady at around 3 percent on Wednesday; But this is the data for February, and it is the figures for March that will begin to show the direct knock-on effect of the war.
But what is certain is that we were on track for 2 percent inflation in the spring before the attacks on Iran began, whereas now it seems certain that we will see a serious reversal instead.
RSM UK chief economist Thomas Pugh said: “Inflation is expected to rise in March as the first impact of higher fuel prices begins to show in official data. With pump prices rising to around £1.60 per liter by April, we expect inflation to fall only slightly compared to previous expectations for it to slow to 2 per cent. Further down the line, the rise in natural gas prices will prompt Ofgem to raise the energy price cap in July, further increasing upward pressure on inflation and pushing it to over 3 per cent.” will make it come out.”
Mortgages
The fact that mortgages below 4 percent from all major lenders have disappeared from the market is a sign of how quickly things are moving domestically.
While mortgage deals are loosely tied to the BoE interest rate, it is the swap rates that really influence them. These are contracts traded on money markets and can change very quickly in either direction; that is, they begin to rise as soon as the first missiles are hit. This means that the best mortgage rates were quickly removed and so our base rate rose significantly from 3.75 per cent without moving at all.
According to data from Barclays, 37 per cent of homeowners on fixed-rate mortgage deals believe their mortgage costs are likely to rise over the next few months; 8 percent of mortgage holders say their deal will expire within three months.
FTSE100
Although not everyone immediately feels affected when investments fall, the truth is that almost all of us are; for example, if you work in the UK and have a workplace pension, it is likely that this impact will be at least partly credited to the stock market.
The FTSE 100, the main index of London-listed businesses, was on the brink of a record 11,000-point milestone before the war – but not only has it fallen completely since then, down around 10 per cent, but the index has also seen all its gains for the calendar year completely wiped out. As of Tuesday afternoon, it was down 0.65 percent so far for 2026 and up more than 21 percent for all of 2025.
heating oil
Almost 2 million homes and businesses across the UK still use heating oil and this cap is not protected by the energy price; but Ms. Reeves insisted Treasury officials had “found money” for aid.
As with any commodity, prices rise higher when demand exceeds supply and global oil supply is under severe pressure; The cost of heating oil rises from 60-1p per liter before the start of the Middle East war to a high point of around 134p per liter. Today the price is still high, standing at 129.3 pence per litre.
groceries
Food production, which involves an energy-intensive supply chain, is expected to be directly affected by conflicts in the Middle East, a major energy-producing region.
In a worst-case scenario, food inflation could briefly rise above 8 percent by June 2026, according to new forecasts from the Institute of Grocery Distribution (IGD); This rate is more than double the current food inflation rate of 3.6 percent.
This is on top of the constant rise in prices, according to IGD; Retail food prices in the UK are now around 38 per cent higher than pre-Covid levels, leaving households much more exposed to further price rises.
On Tuesday Ms Reeves announced plans to meet with supermarkets and banks later this week to discuss what help they could offer customers.
