Cost of war in Iran reaches £2,400 - Analysis for UK households by end of 2027
UK households will have suffered an average financial hit of £2,400 from the war in Iran by the end of 2027, an analysis shows.
The Centre for Economic and Business Research (CEBR) has calculated that the rise in inflation since the start of the conflict and weaker wage growth will reduce the real income of an average UK household by £1,100 in 2026 and by a further £1,300 in 2027.
This amounts to a total of £70.4 billion that will be wiped out of the real disposable income of UK households by the conflict in the Middle East.
The economic shock from the closure of the Strait of Hormuz hits UK households through two channels. “The first is direct: higher energy costs affect bills and the price of almost everything else, so each pound of wages buys less,” the analysis explained. The indirect channel is slower but just as important, passing through monetary policy and the labour market.
Before the Iran war broke out, the Bank of England was expected to cut interest rates this year. Instead, borrowing costs have remained unchanged, with City traders expecting a rate hike by December.
The squeeze on real incomes from higher energy costs and stable interest rates will hit households' purchasing power, hurting economic growth. Energy bills across the UK are set to rise by 4% in October.
Last week, the Energy and Climate Intelligence Unit (ECIU) calculated that the highest wholesale oil and gas prices since the start of the US-Iran war on February 28 will add around £9.8 billion to the UK’s energy and road transport costs. Gas and electricity users face paying an extra £190 million for every week the conflict continues.
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