How the Iran war affects your money and bills

How the Iran War Influences Your Finances and Expenses

Transport Costs and Fuel Prices

The ongoing US-Israel conflict with Iran has already affected household budgets in the UK, particularly for those relying on fuel. Crude oil prices have surged significantly since the war began, though they remain subject to fluctuations based on the conflict’s status and White House statements. According to the RAC, the average petrol price reached 158.27p per litre on 13 April, a 25p rise from earlier in the month. Diesel prices have climbed to 191.5p a litre, up nearly 49p since March.

For a typical family car requiring 55 litres of petrol, the cost has climbed by £14 since the conflict started, while diesel expenses have increased by £27. Simon Williams of RAC noted that pump price growth is easing, but any declines will hinge on the outcome of peace negotiations. He highlighted the Strait of Hormuz as a critical factor in maintaining price stability.

“It’s a highly volatile situation with much depending on what happens with the Strait of Hormuz,” Williams stated.

Mortgage Rates and Financial Markets

Before the war, UK households anticipated steady decreases in mortgage rates, including new fixed and variable deals. However, this expectation has shifted. Lenders are now increasing rates due to higher funding costs and uncertainty about future interest rate trends. Moneyfacts reported that the average two-year fixed rate rose from 4.83% in March to 5.89%, while five-year deals climbed from 4.95% to 5.77% over the same period.

Economic instability has also reduced mortgage product availability. Moneyfacts noted around 1,500 fewer residential mortgage options are on the market, though over 6,000 deals remain. This scarcity reflects lenders’ cautious approach amid uncertainty, with the potential for further adjustments.

Energy Bills and Price Caps

While energy bills are shielded by Ofgem’s price cap in England, Wales, and Scotland, this measure is temporary and not universally applicable. For variable energy deals, the cap limits unit prices until July. Initially, prices dipped in early April, but future wholesale market trends will determine summer costs. Cornwall Insight forecasts a dual-fuel household using standard energy levels could pay £1,861 annually under the July-September cap, up from £1,641 currently.

Analysts warn that rising oil costs may indirectly impact goods and services. For instance, higher transport expenses for supermarkets could translate into increased food prices. Similar to the aftermath of the pandemic and the Ukraine invasion, the government might need to intervene with measures like the Energy Price Guarantee to support consumers.