Iran war could cost average UK household £2,400 by end of 2027
Higher energy prices, inflation and weaker wage growth linked to the Iran conflict could reduce the real disposable income of an average UK household by £2,400 over 2026 and 2027,
By The Guardian
The economic consequences of the Iran war could leave the average UK household around £2,400 worse off by the end of 2027, according to new analysis examining the effect of higher energy prices on household finances.
The Centre for Economics and Business Research estimates that the conflict will reduce the real disposable income of an average household by approximately £1,100 during 2026, followed by another £1,300 in 2027.
Across the UK, the organisation estimates the cumulative impact could amount to £70.4 billion in lost real household disposable income.
The figures are economic estimates rather than direct bills households will receive and represent the projected reduction in purchasing power compared with what households might otherwise have experienced without the conflict.
Much of the impact is linked to disruption affecting the Strait of Hormuz, one of the world's most important routes for oil and gas supplies.
Higher wholesale energy costs can reach households directly through petrol, diesel and domestic energy prices.
They can also feed through to the wider economy because businesses face increased costs for transport, manufacturing, heating and electricity.
Those additional expenses can ultimately contribute to higher prices for everyday goods and services.
Liam Daly, senior economist at CEBR, said the impact on households operates through both direct and indirect channels.
The immediate effect comes from increased energy costs, which reduce the amount households can spend elsewhere.
Longer-term consequences can include higher inflation, weaker real wage growth, changes in employment conditions and the effect of inflation on interest-rate decisions.
This has implications for households with mortgages, loans and other borrowing.
Before the conflict intensified, financial markets had expected further reductions in Bank of England interest rates.
Persistent inflationary pressure from energy prices could make policymakers more cautious about reducing borrowing costs, while expectations have increasingly shifted towards rates remaining higher for longer.
That combination can create pressure from both directions for household budgets.
Families can face higher prices for energy, fuel and everyday purchases while mortgage and other borrowing costs remain elevated.
Energy bills are also due to increase again in October after Ofgem announced a 4% rise in its quarterly energy price cap.
Separate analysis from the Energy and Climate Intelligence Unit has estimated that higher wholesale oil and gas prices since the outbreak of the US-Iran conflict on February 28 could add around £9.8 billion to UK energy and road transport costs.
It estimates that every additional week of elevated prices could add approximately £190 million to the total.
The effect will vary substantially between households.
People who drive longer distances, live in less energy-efficient homes or are refinancing mortgages while interest rates remain elevated may experience greater pressure than households with lower energy consumption and no borrowing.
Businesses are also exposed to the same energy shock.
Higher transport, electricity and production costs can reduce margins or result in companies passing some of those increases on to customers.
For Cheshire households, where many residents rely on cars for commuting and everyday journeys, movements in petrol and diesel prices can be particularly noticeable alongside changes to domestic energy bills.
The £2,400 estimate should therefore not be interpreted as an additional charge of that amount for every household.
Instead, it represents CEBR's estimate of how much lower average real household disposable income could be across 2026 and 2027 as inflation, wages, energy costs and wider economic conditions respond to the conflict.
How large the eventual financial impact becomes will depend heavily on the duration of the disruption and how quickly international energy markets stabilise.