UK Households Face £70bn Financial Blow from War on Iran

UK households are facing a significant financial blow due to the ongoing war on Iran. According to a recent analysis by the Centre for Economics and Business Research (CEBR), the conflict has led to a jump in inflation, resulting in a £1,100 hit on the real income of the average UK household in 2026, with an additional £1,300 impact expected in 2027.

This adds up to a total of £70.4 billion that will be wiped off UK households' real disposable incomes by the Middle East conflict, as calculated by the CEBR. The economic shock from the closure of the Strait of Hormuz affects households through two channels: direct and indirect. Directly, higher energy costs feed into bills and prices, making each pound less valuable.

Indirectly, monetary policy and the labor market are affected, with steady interest rates contributing to a squeeze on real incomes. Before the war began, the Bank of England had been expected to cut interest rates this year, but instead, borrowing costs have remained unchanged, with one rate rise expected by December.

The combination of higher energy costs and steady interest rates will hit household spending power and economic growth. Energy bills across Great Britain are set to rise in October after the regulator Ofgem lifted its quarterly price cap by 4%. The Energy and Climate Intelligence Unit thinktank estimated that higher wholesale oil and gas prices since the start of the US war against Iran have added £9.8 billion to UK energy and road transport costs.