The US-Iran war is set to deliver a severe financial shock to UK households, with the average family expected to lose £2,400 in spending power over the next two years as higher energy prices fuel inflation and constrain wage growth.
Analysis by the Centre for Economics and Business Research estimates that the combination of accelerating inflation and weaker real wage growth will reduce average real household incomes by £1,100 in 2026, followed by a further £1,300 in 2027.
Across the UK economy, the CEBR estimates that the conflict will wipe £70.4bn from real disposable household income.
The impact is being transmitted through disruptions to shipping and energy supplies around the Strait of Hormuz, one of the world’s most important trade routes for oil and liquefied natural gas.
The crisis began on February 28 after joint US-Israeli strikes on Iran triggered an on-and-off blockade of the strategic waterway.
The disruption has placed a fifth of global oil shipments and LNG exports at risk, creating what has been described as the largest shock to global energy supplies in modern history.
For British consumers, the resulting rise in wholesale energy costs is feeding through into electricity and gas bills, petrol prices and the cost of goods transported through international supply chains.
The shock is also complicating the Bank of England’s efforts to bring inflation under control. Higher energy prices risk generating second-round effects across the economy, while tighter monetary policy aimed at containing those pressures can weaken household demand and business investment.
The conflict comes on top of continuing disruption associated with the war in Ukraine, which has already contributed to strains across European energy markets and supply chains.
Financial markets had previously expected the Bank of England to reduce borrowing costs this year. Persistent inflation has instead kept policymakers from cutting rates, with investors now pricing in the possibility of an increase before December.
Liam Daly, senior economist at the CEBR, said the consequences of the conflict were increasingly visible in household finances.
“A conflict fought thousands of miles away continues to bear on UK households, with real income erosion felt in the weekly shop, at the pump and on the energy bill,” he said. “Until energy markets calm, the squeeze will persist.”
The pressure on consumers is expected to increase further in October, when Ofgem is due to raise its quarterly energy price cap by 4 per cent.
Research by the Energy and Climate Intelligence Unit estimates that higher oil and gas prices have already added £9.8bn to British household energy and transport costs.
The additional burden is increasing as uncertainty grows over the duration of the conflict. If fighting continues for an extended period, elevated energy prices could prolong inflationary pressure and further constrain household consumption.
The ECIU estimates that British energy consumers are paying an additional £190mn for every week the conflict continues.
That leaves the UK economy exposed not only to the direct cost of higher energy imports, but also to the broader effects of weaker real incomes, subdued consumer spending and tighter financial conditions.
For households already facing pressure from elevated living costs, the latest estimates point to a prolonged squeeze in purchasing power — with the ultimate cost increasingly dependent on how long the conflict disrupts global energy markets.
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