How the Iran war affects your money and bills

ShareSaveAdd as preferred on GoogleKevin PeacheyCost of living correspondentGetty ImagesFrom petrol prices to mortgage rates, the US-Israel war with Iran has already had an impact on people's finances in the UK. One think tank has estimated the average working-age British household could be hundreds of pounds worse off this year as a result of the conflict. Here are some of the areas to watch out for. Drivers have noticed that prices at the pump have jumped since the war began, but have since dipped from their peak. Crude oil is a key ingredient in petrol and diesel, meaning higher wholesale costs make filling up a car more expensive. Analysts say every $10 (£7.53) increase in the wholesale oil price pushes up pump prices by roughly 7p a litre. Since the war began, that wholesale price has been volatile as the production and transportation of energy across the Middle East has slowed or stopped entirely due to missile strikes and drone attacks. Figures from the RAC motoring group show average petrol and diesel prices started falling on 16 April after 46 days of increases – the longest run of consecutive rises on record. The price of petrol peaked at 158.3p a litre and diesel reached 191.5p a litre, the RAC said. The latest data shows petrol was marginally under 157p, and diesel 188.5p, with the RAC expecting further falls. It means that the average cost filling a 55-litre family car with petrol has increased by £14 since the start of the Iran conflict, with diesel up by £27. Because transporting oil is a slow process, price movements in the wholesale markets take about a fortnight to show at the pump. Fuel retailers have denied accusations of price gouging during the conflict and the regulator has said there is no evidence of widespread attempts of profiteering. While motoring organisations say that there are plenty of supplies, they are encouraging people to reduce non-essential journeys. They also suggest people amend their driving style, by not accelerating or braking too hard to conserve fuel. Not everyone has a car or may not use one for a daily commute. However, when petrol rises, it can carry through to higher prices for goods and services. For example, if transport costs for supermarkets increase that could then be reflected in the cost of food. Before the war began, there had been a hope and expectation of a steady fall in the interest rates charged on new, fixed mortgages, as well as lower variable rates. Lenders raised rates quickly, due to their own funding costs rising and an expectation that the base borrowing rate would not fall as previously anticipated. The average two-year fixed rate has jumped from 4.83% at the start of March to 5.78% now, according to the financial information service Moneyfacts. The cheapest deals have risen the fastest. For those looking for a five-year deal, the average rate has risen from 4.95% to 5.68% over the same period. This means they are slightly lower than their recent peak. The Bank of England says that over the next three years, average monthly payments for those moving on to a new deal are expected to rise by approximately £80. That is an average and there could be considerable variation. About 53% of UK mortgage holders are expected to see their payments rise, the Bank says, but around 25% of those who fixed at higher rates should see their payments fall, despite recent increases in rates. There is some protection in place for household gas and electricity bills, thanks to the price cap in England, Wales and Scotland set by energy regulator Ofgem. However, it is time limited and does not cover everyone. The maximum price for each unit of energy, for those on variable deals governed by the cap, is set until July. In fact, prices went down at the start of April. What happens between now and late May on the wholesale energy market will determine these household bills from the summer. The period of high wholesale costs is likely to mean a sharp increase in energy prices for millions of people, although a ceasefire – were it to hold – would lower the price peak. Energy consultancy Cornwall Insight's latest forecast predicts that, under Ofgem's price cap for July to September, a dual-fuel household using a typical amount of gas and electricity would pay £1,850 a year, up from the current £1,641. However, this forecast is subject to change. The last time there was a particular spike, following Covid and Russia's invasion of Ukraine, the government had to step in to help with the Energy Price Guarantee (EPG). The chancellor has said there could be government support if needed for bills at the start of winter but, unlike the EPG, it would be based on household income and targeted at those who need it most, rather than universal. Those looking to fix their energy unit price instead are facing a similar situation as people searching for a mortgage. Some energy tariff providers have pulled deals, or have now set them at a higher price.

How the Iran war affects your money and bills

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