The escalating conflict between the US-Israel alliance and Iran is already hitting British wallets, with rising costs at petrol stations and higher mortgage rates signaling broader financial pressures ahead.
Fuel Costs Surge at the Pump
Motorists are facing immediate pain at filling stations, where average petrol prices have climbed to 157.02p per litre—a 24p increase since hostilities began. Diesel has jumped even more sharply to 189.42p per litre, up 47p since early March. For a typical family car with a 55-litre tank, that translates to an extra £13 for petrol and £26 for diesel per fill-up.
Analysts note that every $10 increase in crude oil prices adds roughly 7p per litre at the pump. While supplies remain adequate, motoring organizations are advising drivers to reduce non-essential trips and adopt fuel-efficient driving habits. The ripple effects extend beyond the forecourt, as higher transport costs for goods could soon push up supermarket prices.
Mortgage Rates Reverse Course
Hopes for steadily declining mortgage rates have evaporated as lenders respond to economic uncertainty. The average two-year fixed rate has jumped from 4.83% to 5.89% since March—its highest level since July 2024. Five-year deals have followed suit, rising from 4.95% to 5.78%.
"When lenders pull deals rather than simply adjusting prices, it often means funding costs are moving too fast for gradual changes," explains Adam French of Moneyfacts.
Approximately 1,500 residential mortgage products have been withdrawn from the market, though over 6,000 options remain available.
Energy Bills Face Summer Uncertainty
While the current energy price cap offers temporary protection for most households, what happens on wholesale markets between now and late May will determine bills from July onward. Cornwall Insight forecasts that typical dual-fuel annual costs could rise from £1,641 to £1,871 for the July-September period, though this remains subject to change.
Heating oil users—particularly in rural areas and Northern Ireland—face more immediate pressures without price cap protections. The government has announced £53 million in targeted support for vulnerable households using heating oil.
Inflation and Interest Rate Outlook Shifts
Before the conflict, official forecasts suggested UK inflation would hover around the Bank of England's 2% target. Now, analysts agree inflationary pressures are mounting again, though they don't expect a return to the 11.1% peak seen in 2022.
The Bank of England's monetary policy committee has paused its rate-cutting trajectory, holding the base rate at 3.75% while adopting a "wait and see" approach. Many economists now believe the next interest rate move could be upward rather than downward.
Broader Economic Implications
The conflict's ultimate impact on UK finances depends heavily on its duration and global economic repercussions. While savings might earn slightly higher returns if rates rise, reduced spending power could dampen economic growth. Even leisure activities like holiday planning may be affected as households reassess discretionary spending in an increasingly uncertain financial landscape.