Iran war could cost UK households '£2,400 by 2027'
The economic consultancy, CEBR, estimates that the Middle East conflict will wipe £70.4 billion from UK households’ real disposable incomes.
UK households could face an average £2,400 financial hit by the end of 2027 due to the economic fallout from the war with Iran, new analysis has shown.
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According to the Centre for Economics and Business Research (CEBR), the jump in inflation and weaker wage growth will reduce the average household’s real income by around £1,100 in 2026, followed by a further £1,300 in 2027.
The economic consultancy estimates that the Middle East conflict will wipe £70.4 billion from UK households’ real disposable incomes.
The economic impact of the closure of the Strait of Hormuz hits UK households in two ways, Liam Daly, CEBR senior economist, said.
“The first is direct: higher energy costs feed straight into bills and into the price of almost everything else, so each pound of pay buys less.
“The indirect channel is slower but as important, running through monetary policy and the labour market.”
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This warning comes as families brace for another hit to their utility bills this autumn. The CEBR notes that Ofgem's October price cap change will add £60 to a typical energy bill, even after factoring in the government's VAT cuts on electricity.
This energy spike follows official data showing that UK inflation already climbed to 2.9% in July as the war pushed global oil prices higher.
Compounding the crisis is a complete freeze on mortgage and borrowing relief. While several interest rate cuts were expected this year, the CEBR now warns that borrowing costs will stay locked at their current high levels.
Financial analysts also predict the Bank of England could be forced to raise interest rates from 3.75% to 4% by December to fight inflation.
The CEBR estimates this double squeeze will drain £31.5 billion from British householders' pockets this year.
“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. Until energy markets calm, the squeeze will persist,” Mr Daly said.