The Modern Cost of Living Crisis: How the Iran War is Hitting Britons’ Pockets
Just as a sense of economic stability began to return, Britons are once again facing a cost of living crisis, this time fueled by escalating tensions in the Middle East. From mortgage rates to energy bills and the price of petrol, the economic storm is already impacting household finances, with warnings of further increases to come.
Mortgage Market Mayhem: “Trumpflation” Bites
The Iran war has triggered a “catastrophic” effect on the UK mortgage market, with nearly 1,000 mortgage products withdrawn by lenders in a matter of weeks. Borrowers seeking a new two-year fixed-rate mortgage are now facing average annual costs £900 higher than before the conflict began, a phenomenon dubbed “Trumpflation.” This surge in borrowing costs is occurring despite the Bank of England holding rates at 3.75% – a move that was previously expected to see rates cut, not rise.
With approximately 1.8 million fixed-rate mortgage deals expiring in 2026, a significant number of homeowners will soon be forced to refinance at these higher rates, adding substantial pressure to household budgets.
Energy Bills Set to Soar Again
The war in the Middle East is also sending shockwaves through energy markets. Experts predict that typical household energy bills could rise by more than £300 a year. Whereas the energy price cap in England, Wales, and Scotland currently shields consumers from immediate market fluctuations, this protection is temporary. From April to June, the average annual dual-fuel bill is £1,641, but analysis suggests this could jump to £1,972 from July.
The situation is particularly acute for the 1.5 million UK households that rely on heating oil, which is not protected by the price cap. These customers have already seen costs more than double since the start of the war, prompting the government to allocate £53m in support for low-income households.
Filling Up: Pain at the Pumps
Rising energy prices are immediately reflected at the petrol pumps. The average price of unleaded petrol is likely to reach 150p a litre, with diesel potentially hitting 180p by Easter. Since the conflict began, petrol prices have risen by almost 12p a litre (9%), and diesel by 24p (17%). This translates to an extra £6.40 to fill a typical family car with petrol and a hefty £13 for diesel.
The RAC warns that further price increases are “all but inevitable,” and the rising cost of fuel could also impact supermarket prices as transportation costs increase. The International Energy Agency is urging workers to carpool or function from home to mitigate the crisis.
The Weekly Shop: A Sluggish Burn
While fuel price increases are immediate, the impact on supermarket shelves will be more gradual. Surging energy costs are being passed through the supply chain, increasing the price of crucial farming inputs like fuel, and fertiliser. Any shortages, particularly of goods passing through the Strait of Hormuz, are expected to push up the price of household staples like bread, pasta, and potatoes.
Food price inflation, which had begun to normalize after the surge following Russia’s invasion of Ukraine, is now expected to accelerate towards the end of the year.
Holidays: Book Now or Pay More?
The travel industry is warning of higher airfares due to increased jet fuel prices, advising passengers to book early. Some travellers are already reconsidering trips, potentially leading to lower prices in destinations like the eastern Mediterranean, but higher prices in popular alternatives like Spain and Portugal. Travel insurance costs are also on the rise, particularly for travel outside Europe.
Frequently Asked Questions
Q: What is “Trumpflation”?
A: “Trumpflation” refers to the increase in borrowing costs and economic instability linked to geopolitical events, in this case, the war in Iran.
Q: Will the energy price cap protect me?
A: The price cap provides temporary protection, but is expected to rise significantly from July.
Q: What can I do to save money on fuel?
A: Carpool, work from home if possible, drive efficiently, and shop around for the cheapest fuel prices.
Q: How will the war affect my holiday plans?
A: Airfares may increase, and travel insurance costs are rising. Booking early is advised.
Did you know? Approximately 1.8 million mortgage deals are due to end in 2026, meaning a large number of homeowners will face higher borrowing costs.
Pro Tip: Use comparison websites and apps to locate the cheapest fuel and energy deals in your area.
What are your biggest concerns about the rising cost of living? Share your thoughts in the comments below, and explore our other articles for more financial advice.
