Iran war sends bills rocketing: Petrol, heating and home loans on the up… and inflation is next

Donald Trump’s war in the Middle East has left Britain on the brink of a new cost of living crisis, with oil, energy and mortgage bills soaring.

As oil prices approached $120 (£95) a barrel yesterday – before falling below $90 – fears grew that beleaguered British families would pay a heavy price for the US President’s military campaign.

It was around $90 a barrel today in volatile overnight trading.

The cost of refueling a car has already skyrocketed in the past week. Experts have said annual energy bills could top £2,000 by the summer as gas prices also rise.

Mortgage lenders scrambled to get their best deals yesterday; This can turn into a ‘snowball’ effect and bring further pain to debtors.

Mr Trump dismissed the rise in oil prices as ‘too small a price to pay’ and insisted ‘only fools would think differently’.

But as market turmoil deepened yesterday, it became clear that UK households will be feeling the pain, raising fears of a recession.

In a rare House of Commons speech, Chancellor Rachel Reeves said the crisis “is likely to put upward pressure on inflation”, with experts predicting inflation could rise as high as 5 per cent.

US President Donald Trump said last night that he “will not allow a terrorist regime to hold the world hostage and try to stop the world’s oil supply.”

Prime Minister Keir Starmer said: ‘The longer this goes on, the greater the potential for impact on our economy, the greater the likelihood of impacting the lives and homes of everyone and every business.’

The prospect of higher inflation has shattered hopes that the Bank of England will cut interest rates this year and raised the prospect of rates rising. It also deals a major blow to Labour’s attempt to revive its fortunes by focusing relentlessly on the cost of living.

In his Spring Statement on the economy last week, the Chancellor told MPs he would finally get inflation under control this year and promised to cut families’ fuel bills. Now it seems likely that both will rise.

The government’s borrowing costs have also risen sharply, raising the prospect of further tax increases. And Ms Reeves is resisting pressure to increase defense spending despite criticism of Britain’s military response to the crisis.

The chancellor told MPs that further increases to the defense budget would not be made until a spending review in the summer of next year. Ms Reeves was also criticized by the Conservatives yesterday for resisting calls to scrap this year’s increase in fuel duty. And Shadow Chancellor Mel Stride accused him of ‘gross mismanagement’ of the economy for allowing inflation and debt to spiral.

Susannah Streeter, of investment platform Wealth Club, said: ‘Consumers are paying the price for the US and Israel’s audacious attack on Iran.’

Deutsche Bank’s British economist Sanjay Raja said: ‘This certainly feels like a new wave in the ongoing cost of living crisis.’

Martin Beck, chief economist at consultancy WPI Strategy, warned that the economy could ‘stagnate or even go into recession’.

The attack on Iran stunned markets and caused gas and oil prices to rise last week.

The war effectively closed the Strait of Hormuz, the sea lane through which one-fifth of the world’s oil passes. This has led some Gulf countries to stop pumping due to running out of storage capacity. Gas plants were also disrupted.

Last night Mr Trump told reporters that he “will not allow a terrorist regime to hold the world hostage and try to stop the world’s oil supply, and if Iran does anything to do that they will be hit much harder.”

He said the Strait of Hormuz “will remain safe.” Iran’s attacks made tankers reluctant to pass through the strait.

Recent developments caused the price of Brent crude oil to rise to $119.50 per barrel. However, it later fell below $90 amid volatile trading. Oil rose above $100 for the first time since 2022, when Russia invaded Ukraine. Analysts at Goldman Sachs said the size of the oil supply disruption was 17 times greater than at that time.

Meanwhile, gas prices in Europe have risen to $170 per therm (one unit of thermal energy), more than double their level before the war began.

The RAC said petrol prices had risen by 5p per liter since the start of the crisis and diesel prices had risen by 9p.

Household energy bills hit a ceiling until the end of June, but a new ceiling will be applied thereafter based on recent price movements. Deutsche Bank predicted this could mean annual bills of more than £2,000 and the Chancellor would scrap the reforms.

Rising government borrowing costs could wipe out as much as £10bn of Ms Reeves’ £24bn ‘headroom’.