UK households are projected to face an average financial impact of £2,400 by the close of 2027, stemming from the Iran war, according to new analysis from the Centre for Economics and Business Research (CEBR).
The CEBR's calculations attribute this to increased inflation since the conflict began and weaker wage growth. This is expected to reduce the real income of the average UK household by £1,100 in 2026, followed by an additional £1,300 in 2027.
Overall, the economic consultancy estimates that the Middle East conflict will diminish UK households' real disposable incomes by a total of £70.4bn. Liam Daly, a senior economist at CEBR, explained that the economic shock from the closure of the Strait of Hormuz impacts households through higher energy costs and its effect on monetary policy and the labour market.
Before the Iran war, the Bank of England was anticipated to cut interest rates this year. However, borrowing costs have remained unchanged, with City traders reportedly expecting one rate rise by December. This squeeze on real incomes, driven by higher energy costs and stable interest rates, is anticipated to affect household spending power and economic growth.
Energy bills across Great Britain are scheduled to increase in October, following Ofgem's decision to raise its quarterly price cap by 4%. The Energy and Climate Intelligence Unit (ECIU) previously calculated that higher wholesale oil and gas prices since the US-Iran war began on 28 February will add an estimated £9.8bn to UK energy and road transport costs. The ECIU also found that UK gas and electricity users could face an extra £190m in costs for each week the conflict continues.