The pound has fallen amid a global oil shock, raising concerns that rising energy prices and a weaker currency could push living costs higher again in Britain, threatening the government’s attempts to ease pressure on households.
The warning comes from Nigel Green, chief executive of the financial advisory giant deVere Group, after sterling slid toward $1.33 against the dollar in early trading while crude oil surged above $120 a barrel.
The spike followed escalating conflict in the Middle East and severe disruption to global energy flows, including turmoil around the Strait of Hormuz — the narrow shipping corridor through which roughly 20 per cent of the world’s oil supply passes.
Shipping through the strait has been severely curtailed amid attacks on vessels and threats to energy infrastructure, forcing traders to rapidly reprice supply risks and pushing energy markets sharply higher.
Mr Green warned the combination of a weaker pound, and rising oil prices could significantly increase costs for British consumers.
“Energy becoming more expensive globally and the weaker pound means Britain pays even more for those imports,” he said.
“Oil and most commodities are priced in dollars. A softer pound therefore magnifies the impact of rising global prices.”
He added that households would feel the pressure quickly.
“People experience it at petrol pumps, in energy bills, and through higher prices in supermarkets.”
The development risks undermining efforts by the government of Keir Starmer to reduce financial pressure on families.
Recent economic messaging from Downing Street has centred on lowering household costs, with ministers highlighting measures designed to reduce annual energy bills by around £150 as part of wider affordability plans.
Mr Green said those ambitions could be difficult to maintain if energy markets remain volatile.
“Government plans to ease household bills rely heavily on a stable or falling energy environment. Oil above $120 changes that calculation quickly.”
Energy markets surged after joint strikes by the United States and Israel on Iran intensified tensions across the Gulf region, raising fears of broader disruption to oil and gas exports.
“The Gulf region sits at the centre of global energy supply,” Mr Green said.
“Escalation involving major producers immediately tightens markets and sends prices higher.”
The economic implications could be significant if elevated prices persist.
Analysts have warned that rising wholesale energy costs could push the UK’s regulated household energy price cap sharply higher later this year. Some estimates suggest it could rise by as much as £500 from July if energy markets remain elevated.
“Energy price caps move with wholesale markets,” Mr Green said.
“A sustained surge in oil and gas increases the likelihood of higher household energy bills later in the year.”
Higher energy prices could also complicate the Bank of England’s outlook.
Markets had expected policymakers to begin cutting interest rates as inflation eased, but Mr Green warned that a renewed surge in energy costs could delay that path.
“Central bank policymakers are extremely sensitive to energy-driven inflation. Oil above $120 makes it far harder to justify lower borrowing costs in the near term.”
Businesses are also likely to face rising pressure.
“Companies across logistics, aviation, retail and manufacturing rely heavily on energy,” he said.
“Oil above $120 significantly increases operating costs, squeezing margins and often forcing firms to pass higher costs on to consumers.”
Import-dependent sectors will also feel the effect of sterling weakness.
“Sterling around $1.33 raises the cost of imported goods across the economy. Raw materials, fuel and consumer products all become more expensive.”
The combined effect of higher energy prices and a weaker pound could therefore reignite inflationary pressure across the economy.
“Higher oil prices feed directly into transport, electricity generation and food production,” Mr Green said.
“Add a weaker pound and the inflation effect becomes even stronger.”
He concluded: Sterling’s drop highlights how quickly geopolitical shocks feed into UK domestic economic conditions. Higher oil prices, a weaker pound and rising inflation risks create real challenges for households, businesses, investors, the Bank of England and the Prime Minister alike.”
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