Iran-US Conflict Squeeze UK Economy

The escalating Iran-US conflict is sending shockwaves through global energy markets, and Britain's economy is feeling the pinch. As Brent crude prices hover around $100 per barrel, UK consumer prices are expected to rise, forcing the Bank of England into raising interest rates.

With a fifth of the world's oil passing through the Strait of Hormuz each day, the conflict has created a cascading set of problems for the UK economy. Higher oil prices directly feed into petrol and diesel costs, which rose by approximately 6p per litre in early September 2026 alone.

UK CPI hit 2.9% in July 2026, and forecasts suggest inflation could peak between 3.2% and 4.5% or higher depending on the conflict's evolution. The UK is particularly exposed due to its status as a net energy importer, lacking domestic production capacity like the US or Norway.

Higher gilt yields are also influencing mortgage rates, with five-year fixed mortgage rates climbing to around 5.78% earlier in 2026. This puts significant pressure on household finances, especially for those remortgaging off cheaper pandemic-era deals. Market expectations point towards increases to 4% or even 4.25% by the end of the year.