Iran conflict threatens new cost of living crisis in Britain as energy markets in ‘turmoil’ and mortgage rates on the rise
A rise in oil prices due to escalating conflict in the Middle East has led to fears of a new cost of living crisis in the UK.
Experts warn rising prices and energy bills could fuel higher inflation, which could have a knock-on effect on mortgages, savings and rising food costs.
Markets are bracing for longer-term volatility as the United States and Israel continue to attack Iran, Tehran authorizes revenge attacks on countries in the region and impacts the transit of goods through the Strait of Hormuz.
Oil prices could be heading for their biggest weekly rise in six years on Friday, with the price of Brent crude surpassing $88 (£65) a barrel, its highest price since April 2024.
If the gains continue until markets close at the end of the day, it would mark the biggest weekly gain since the Covid-19 outbreak.
Greg Jackson, CEO of Octopus Energy, said: Times Radio He said energy markets were in “turmoil” after Iran warned ships not to pass through the waterway and Qatar announced it was halting gas production following attacks on its facilities.
Disruption to shipping routes has also caused wholesale prices to rise this week as firms react to a combination of security threats, insurance restrictions and operational uncertainty.
While a number of major energy suppliers have withdrawn fixed-price tariff deals altogether, the UK’s largest household energy supplier, Octopus, said it was increasing tariffs and introducing exit charges in the face of rising gas and oil prices.
The recently adopted energy price cap means typical bills will actually fall in April, but experts predict those bills will rise by around 10 percent from July, mainly due to higher gas prices.
Meanwhile, new analysis from the Energy and Climate Intelligence Unit (ECIU) has suggested that oil trading at $100 (£74) a barrel could see the price of oil per liter jump from 135p to 150p today, costing drivers close to £140 extra on the cost of traveling 8,000 miles a year.
At $120 (£89) petrol could rise to around 170p a litre, increasing annual fuel costs by more than £320 a year.
Diesel prices have risen to a 16-month high since the start of the conflict, as FairFuelUK campaigners criticize some petrol stations for seemingly holding back on price rises.
“More than a hundred and twenty FairFuelUK supporters have contacted the campaign from across the UK to let them know that pump prices have increased by an average of 6.7p for petrol and 8.8p for diesel in the last 48 hours,” said the organisation’s founder, Howard Cox.
“Many believe that many of these forecourts are selling fuel at these high prices even though they purchased the stock before any wholesale increases. It appears that opportunistic profiteering has become widespread once again.”
Rachel Winter, partner at Killik & Co, added: “Consumers will not yet feel the full price difference at the pump as many companies have pre-purchased the oil, but this could change if the conflict continues.
“As we have not seen oil prices rise to levels previously seen during times of significant and prolonged disruption, the market appears hopeful of a quick resolution or some form of government intervention.
“The Brent price, for example, surpassed $120 (£89) per barrel after Russia invaded Ukraine in 2022, but despite its recent increase, it is now below $90 (£67).”
There are also concerns that the increase in energy prices could lead to an increase in food and drink prices in the UK.
Balwinder Dhoot, director of growth and sustainability at the Food and Drink Federation (FDF), said: “However, it would be worrying to see a sudden rise in gas prices when food producers are already under pressure from years of rising operating costs and food inflation remains above historical averages.
“We have warned the government must support long-term business resilience and investment to help reduce food inflation and protect shoppers from price rises.”
Meanwhile, many mortgage lenders in the UK began to raise interest rates as a result of the conflict; Experts have warned that this could put pressure on the Bank of England not to cut further interest rates.
Nationwide Building Society and HSBC UK have said they will increase some mortgage rates from Friday, including for first-time homebuyers, house movers and people moving and remortgaging.
Coventry Building Society is set to increase mortgage rates on Monday.
Adam French, head of consumer finance at Moneyfacts, said: “This is a stark reminder that mortgage costs are not just affected by domestic policy decisions.
“Global geopolitical events move markets, markets move swap rates, and swap rates ultimately shape the deals offered to borrowers—all while the world watches deeply disturbing events unfold.”
While the Bank of England kept interest rates at 3.75 percent last month, Governor Andrew Bailey had commented that further cuts were likely later this year. But the impact of the conflict in Iran has made this less predictable, with the National Institute for Economic and Social Research predicting the Bank may have to raise interest rates above 4 percent.
The final interest rate decision will be announced on March 19.
