Iran war impact on UK energy bills, mortgages and fuel prices explained

The conflict involving the US, Israel and Iran has had a measurable effect on household finances across the UK, touching everything from fuel costs to mortgage rates and energy bills, according to a report by BBC Business.

Petrol and diesel prices

Drivers have seen noticeable swings at the pump since the conflict began. According to the RAC, petrol reached a war peak of 159.53p a litre on 28 May, while diesel hit its highest point of 191.54p a litre on 15 April. More recent RAC figures show petrol sitting marginally under 157p a litre and diesel just under 178p, with the RAC expecting further falls.

In practical terms, the BBC reports it now costs £97.22 to fill a 55-litre family car with diesel, £18.91 more than it did on 28 February, and £85.74 for a tank of petrol, which is £12.68 more than at the start of the conflict.

Crude oil prices have been volatile due to disruption to energy production and transportation across the Middle East. The BBC notes that wholesale price movements typically take around a fortnight to feed through to forecourt prices, meaning any easing in the region would take time to be felt by motorists. Fuel retailers have denied accusations of price gouging, and the regulator has said there is no evidence of widespread profiteering.

Higher fuel costs can also carry through to goods and services more broadly. If transport costs for supermarkets rise, that could be reflected in food prices, the BBC notes.

Mortgage rates

Before the conflict began, there had been an expectation of a steady fall in fixed mortgage rates. That expectation has not been met. According to financial information service Moneyfacts, the average two-year fixed mortgage rate jumped from 4.83% at the start of March to a peak of 5.90% on 12 April, before dropping back to 5.61% as of mid-June. The average five-year fixed rate rose from 4.95% to a peak of 5.78%, and has since dipped to 5.58%.

The Bank of England has said that over the next three years, average monthly mortgage payments for those moving onto a new deal are expected to rise by approximately £80. The Bank also notes that around 53% of UK mortgage holders are expected to see their payments increase, though approximately 25% of those who fixed at higher rates could see payments fall despite recent rate rises.

Energy bills and heating oil

Household gas and electricity bills in England, Wales and Scotland carry some protection through Ofgem's price cap, which sets a maximum price per unit of energy for those on variable tariffs. However, the BBC reports that from July the cap will result in a 13% rise in bills, as higher wholesale costs feed through to suppliers. Under the Ofgem price cap for July to September, a dual-fuel household using a typical amount of energy would pay around £18 a month more, driven mainly by a higher charge for gas.

The Chancellor has indicated there could be government support for bills at the start of winter if needed, but unlike the previous Energy Price Guarantee, any such support would be means-tested and targeted at those most in need rather than being universal. Prices from October onwards remain highly uncertain, though the BBC notes the current situation suggests they may not rise at all.

Those using heating oil, common in rural areas and widely used in Northern Ireland, have faced the most immediate impact, as there is no price cap covering that fuel. In March, Prime Minister Sir Keir Starmer announced £53 million in support for the most vulnerable heating oil users, to be distributed via devolved authorities, the BBC reports.

Hopes of resolution, but uncertainty remains

The BBC notes that hopes of a lasting deal to end the conflict have risen, but that the political situation can change quickly, as can its effect on personal budgets. Were the Strait of Hormuz to reopen, it would still take time for oil supply and economic activity to normalise.

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