Impact of Iran Conflict on UK Family Finances
Before the US-Israel conflict with Iran began, Naomi did not hesitate to fill the family van for her young daughter's routine hospital visits. However, the situation has changed significantly.
Fuel prices have surged since the onset of the war, increasing the expense of transporting 10-year-old Riziah—who was born with complex medical conditions—to hospital for essential care more than 30 miles away in Liverpool.
What was once a manageable cost is now forcing the family to reduce spending in other areas to manage financially.
"I don't want the children to see how worried we are," Naomi says.
BBC Panorama has interviewed families experiencing sudden financial strain due to a war occurring 3,000 miles away, as the cost of living rises.
Naomi resides in Chorley, Lancashire, with her husband, daughter, and teenage son.
Increasing fuel costs have become a significant financial burden for families like Naomi's, who must travel regularly.
"We've just filled up the van and it's cost us just short of £130. How is that doable? To just carry on filling up your van each time," Naomi explains.
The family is spending approximately £30 more per week on diesel since the conflict began on 28 February, she adds.
Government data shows diesel prices have risen by 35% in nearly two months, while petrol prices have increased by 19%.
In practical terms, filling a typical family car with petrol now costs about £14 more, and a diesel tank costs roughly £27 more than before.
Additional Energy Concerns for Families
Beyond travel expenses, Naomi is also apprehensive about further financial pressure later this year when home energy bills are expected to rise again, following significant increases in recent years.
Riziah’s medical condition requires the use of devices that consume extra electricity beyond the family's usual usage. Additionally, the home must be kept warm year-round to support her health.
Millions of households in England, Wales, and Scotland benefit from an energy price cap that limits the cost per unit of gas and electricity. Although the cap decreased at the start of this month, it is anticipated to rise in the next quarter beginning in July.
Energy consultancy Cornwall Insight forecasts the cap will increase to £1,843 annually for a typical household, representing a rise of over 12%, or about £200.
Geopolitical Causes of Price Increases
One major factor driving the rise in diesel and energy prices is the closure of the Strait of Hormuz, the narrow waterway separating Iran from Oman.
This strait is sufficiently deep to accommodate the world's largest crude oil tankers, and under normal circumstances, approximately 20% of the world's oil passes through it from Middle Eastern oilfields.
However, early in the conflict, Iran threatened shipping in the strait in retaliation for US and Israeli strikes, effectively closing it and severely limiting global oil and gas supply.
Although a ceasefire is currently in place, a standoff between Iran and the US means the strait remains closed to most maritime traffic.
While the UK imports very little gas from this region, the restricted supply has increased international oil and gas prices. Higher wholesale gas prices faced by energy suppliers ultimately translate into increased gas and electricity bills for UK households.
Broader Economic Implications
The rising costs of fuel and energy are expected to be accompanied by increased food prices later this year, as disruptions to shipping routes and fuel distribution ripple through the global economy.
Many households already have limited flexibility in their monthly budgets to absorb additional financial burdens, and conditions are likely to become more challenging, according to Mohamed El-Erian, economist and professor at the Wharton School of the University of Pennsylvania.
"This is what worries me most. What's happening now hits those that are most vulnerable, the lower income households that are already under significant pressure, and as a result, they are hardest hit."
Businesses are also contending with increased transportation and energy expenses. While many are currently absorbing these costs, further rises—particularly in food production and distribution—are expected to be passed on to consumers over time.
Interest Rates and Inflation Outlook
Simultaneously, while the situation may benefit savers, borrowers might face disappointment regarding interest rate trends.
The Bank of England uses interest rates to control inflation and had been anticipated to reduce them this year. However, inflationary pressures linked to the Iran conflict may prevent such cuts.
UK inflation, measured by the consumer prices index (CPI), increased to 3.3% in the year to March, up from 3% in the 12 months to February, following the Iran war’s impact on petrol and diesel prices—the largest increase in over three years.
Economists predict inflation could peak between 3.5% and 4% this year.
At the start of the year, the Bank of England expected inflation to fall below its 2% target in April, although current rates remain significantly lower than the double-digit inflation seen in 2022 during the early stages of the Ukraine conflict.
Mortgage interest rates are already rising sharply as markets anticipate further rate increases in the coming months, according to leading economist Michael Saunders.
"That means the households looking to re-fix their mortgage face substantially higher costs than they would have expected previously," he says.
The average interest on a five-year fixed-rate mortgage has risen to 5.7%, up from 4.95% before the conflict began, according to financial information service Moneyfacts.
Personal Impact: Iona's Story
Iona, who lives with her teenage daughter in Mansfield, Nottinghamshire, is among those affected by the more volatile mortgage market.
She purchased her home with a five-year fixed-rate mortgage that expires in September.
While she anticipated an increase in mortgage payments after the fixed term, the onset of the Iran conflict has exacerbated the rise.
Currently, she pays £720 monthly for her three-bedroom house, but this will increase to £1,020—a £300 rise.
"I was gobsmacked. I always expected it would increase anyway but it was a massive shock."
Iona has secured a new five-year fixed-rate deal, which she describes as a gamble taken out of concern that rates may climb further.
Her increased monthly expenses have led her to explore ways to save on groceries and eliminate small luxuries with her daughter, such as attending music shows and dining out.
"I didn't think what was happening thousands of miles away would have a direct impact on my life and my family's life."
