Higher energy prices could leave UK households £480 worse off this year, experts warn
The average household will be £480 worse off this year due to rising energy costs due to the US-Iran war, new research has warned.
The Effective Resolution Foundation think tank found that despite the recently announced ceasefire, the modest increase in living standards expected throughout the year will be completely reversed for the average household.
Median incomes were expected to rise by 0.9 percent this year, according to the group’s pre-conflict forecasts, but are now expected to fall by 0.6 percent instead.
For low-income households, growth was reduced from 2.8 percent to 1.2 percent.
The United States and Iran agreed to a ceasefire at the eleventh hour early last week, announcing the agreement less than two hours before President Donald Trump gave Tehran a deadline to reopen the Strait of Hormuz.
The virtual closure of the waterway last month caused a massive increase in oil and gas prices; This immediately hit fuel costs and threatened to increase energy bills in the summer months.
The energy price cap will remain at £1,641 until the end of June, which experts warn could rise dramatically. A forecast by the respected Cornwall Insight, before the ceasefire was announced earlier this month, suggested it could raise up to £288 for the average household.
Researchers at the Resolution Foundation acknowledged that the future course of the conflict remains “highly uncertain” but added that rising energy bills and fuel prices “will almost certainly trickle down to households”.
Sir Keir Starmer pledged to tackle the rising cost of living, telling households at the start of the month that the conflict “will impact on the future of our country” but that the UK is “well placed to get through this”.
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The Prime Minister sought to reassure Britons that a “long-term plan” was in place, including de-escalating tensions in the Middle East and reopening the Strait of Hormuz.
James Smith, chief economist at the Resolution Foundation, said: “Despite enduring hopes for peace, the course of this conflict remains uncertain and energy prices remain well above pre-war levels, meaning many households face a decline in purchasing power this year.
“This squeeze will also affect the income distribution. Lower-income households will still see some income growth thanks to the long-awaited rise in real benefit levels, but inflation will likely knock more than a percentage point off what they expect to earn. For those in the middle and upper end of the income distribution, even the weak growth they had expected has veered into negative territory.”
The think tank has called on the government to consider a social tariff that would provide low-income families with discounted prices on energy bills.
Mr Smith added: “Easing tensions is certainly welcome, but the damage to household finances this year has largely already been done. The government must act now to prepare a social tariff for struggling households this winter.”
Speaking at the beginning of April, Chancellor Rachel Reeves stated that any support for energy costs would be based on household income, but added that it was “too early to say” exactly how this would work.
Labor MP Graeme Downie, who sits on the energy select committee, said: Independent He said on Thursday that “it will still take a long time for prices to return to normal” and that the full impact of the crisis on the cost of living could be felt “at least until 2027-2028”.
A Treasury spokesman said: “We know consumers are paying more because of the war in the Middle East. It’s not our war and that’s why we didn’t take part. The priority is a peace deal and supporting families through this crisis.”
“We are already cutting energy bills by £150, extending the 5p fuel duty cut, supporting households using heating oil, boosting wages for millions and freezing rail fares and prescription charges.
“The Chancellor has been clear; contingency planning is being done for every eventuality so we can keep costs low for everyone and provide support to those who need it most.”
