The Bank of England has outlined five critical takeaways for households and the economy as the conflict in the Middle East drives up energy costs and inflation. Here's what you need to know.
1. Interest Rate Rises Loom
Just months ago, economists predicted rate cuts. Now, the Bank has signaled possible hikes later this year due to war-driven uncertainty. In its most adverse scenario—oil above $120 a barrel and inflation topping 6%—up to six rate increases could bring the base rate to 5.5%.
2. Millions Face Higher Mortgage Payments
Over 7 million homeowners with fixed-rate mortgages will see average monthly payments rise by £80 when their deals expire in the next three years. While 53% of mortgage holders face increases, 25% who locked in higher rates may see payments fall.
3. Energy Bills to Rise but Not to 2022 Peaks
Domestic energy bills are set to climb, with the typical annual bill rising from £1,641 to nearly £1,900 by July. However, the peak will be lower than after Russia's invasion of Ukraine. Nearly 40% of households on fixed tariffs will be shielded until their contracts end.
4. Low-Income Households Hit Hardest
Rising energy and food prices—food inflation could hit 4.6% in September—disproportionately affect lower-income families. These households have less savings to fall back on and face greater difficulty cutting usage or borrowing.
5. Unemployment Could Rise
With households saving more and spending less, demand weakens. Firms may slow hiring, pushing unemployment higher despite a recent surprise drop. Most pay settlements for 2026 are already set, so wage growth is not expected to keep pace with inflation.