Iran War to Cost UK Households a Staggering £2,400 Over Next Two Years
The Iran war has been ongoing for over six months, with its effects felt far beyond the battlefields. The UK's households are bearing the brunt of the conflict, with a new analysis predicting they will suffer a financial hit of £1,100 on average in 2026, rising to £1,300 by that year. Over the course of the war, from its beginning to 2027, the average household is expected to lose £2,400.
The main reason for this increase is the closure of the Strait of Hormuz, affecting energy prices and feeding into the cost of living. CEBR senior economist Liam Daly explained that 'the first [channel] is direct: higher energy costs feed straight into bills and into the price of almost everything else, so each pound of pay buys less.' He added that the indirect channel, through monetary policy and the labour market, is also significant.
Interest rates in the UK were expected to be cut in 2026 by the Bank of England. However, this has not happened due to the war's impact on the economy. Daly noted that 'a conflict fought thousands of miles away continues to bear on UK households.' He emphasized that real income erosion is being felt 'in the weekly shop, at the pump and on the energy bill.'