Filling a family car with diesel now costs £97.22 – £18.91 more than it did on 28 February, before the US-Israel war with Iran began. A tank of petrol has risen to £85.74, adding £12.68 to the typical household’s fuel bill since the start of the conflict.
The war has disrupted the production and transportation of energy across the Middle East, making wholesale crude oil prices volatile. That volatility has fed directly into the cost of petrol and diesel, according to the RAC. Petrol peaked at 159.53p a litre on 28 May, while diesel hit 191.54p on 15 April. Both have since edged down – to just under 157p and 178p respectively – but the RAC expects further falls as transporting oil is a slow process and price movements take about a fortnight to show at the pump.
“The Iran war has driven UK petrol prices to 159.53p and mortgage rates to 5.90%, hitting household budgets.”
Fuel retailers have denied accusations of price gouging during the conflict, and the regulator has said there is no evidence of widespread profiteering. However, the knock-on effects extend beyond the forecourt. Higher transport costs for supermarkets could feed into the price of food.
The war has also upended mortgage markets. Before the conflict, many expected a steady fall in interest rates on new fixed mortgages. Instead, lenders raised rates quickly, driven by higher funding costs and a revised expectation that the Bank of England’s base rate would not fall as quickly as anticipated.
According to the financial information service Moneyfacts, the average two-year fixed mortgage rate jumped from 4.83% at the start of March to a peak of 5.90% on 12 April. It has since dropped to 5.61% as of mid-June. For five-year deals, the average rate rose from 4.95% to a peak of 5.78% before dipping to 5.58%. As a result, many borrowers now face higher repayments than they might have planned.
The Bank of England estimates that over the next three years, average monthly payments for those moving to a new deal will rise by approximately £80 – though there could be considerable variation. About 53% of UK mortgage holders are expected to see their payments increase.
Hopes of a lasting deal to end the war have risen, but the political situation can change quickly – and with it, the effect on household budgets.