Donald Trump’s all out war on Iran is already hitting the pound in the pocket of millions of already cash strapped households with soaring petrol prices but there are also other, less obvious, costs
While Donald Trump flip-flops over justifying going to war with Iran, ordinary households are paying the price.
Whether you believe the US President and Israel were warranted or not, it’s already hitting people’s squeezed finances. And, as ever, it’s those who can least afford it who are suffering the most through no fault of their own.
There have been most obvious impacts in what is a rapidly evolving situation. Take pump prices, where drivers have winced when visiting the forecourt. A sharp rise in the nationwide average for unleaded means it now costs around £2.70 extra to fill up a typical car compared with before the war erupted.
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For diesel, it’s an extra £4.85 a pop. And that’s before a fresh surge in oil prices is set to deliver more misery for motorists. If, as some experts warn, petrol reaches nearly 150p a litre, drivers will be shelling over almost £9.50 extra for each fill-up compared to pre-war levels. The RAC says diesel could soar towards 180p a litre. That would mean a £100 whack for the average fill-up, and £20 more than before the conflict began.
The other obvious impact is on mortgage rates, with Trump’s action’s putting a kibosh on a near certain Bank of England rate cut next week. All the talk now is about when central banks might hike rates, and by how much, to keep a lid on a possible inflation spike.
Most mortgage lenders aren’t impacted for now, but those taking out a new deal – or remortgaging – won’t be thanking Trump. The pulling of cheap fixed rate mortgage deals in recent days has added around £20 a month – £240 a year – for a borrower getting a typical £180,000 loan now. With all important swap rates rising sharply, that extra outlay could be more like £45 a month – £540 a year – soon.
And that’s before factoring in any impact on so many other costs that are heading north, just when we dared to believe the worst of a previous cycle of sky high prices was over. It is early days, but don’t be surprised to see the price of goods in shops begin to edge back up because of higher input costs.
And there have already been warnings that jet fuel prices are taking off. So you may not be raising a beer to Trump when you’re lying by the pool this summer – that’s assuming you can still afford to get there.
Soaring wholesale energy prices also pave the way for higher gas and electricity prices, yet again. PM Keir Starmer has rightly pointed to Ofgem’s price cap, which will shield tens of millions of households from any spike from April to July. What happens then? It’s early days, but there has already been talk of the cap jumping by £160 a year.
Labour is painfully aware of the toll the cost of living crisis has already had on many voters’ threadbare finances. Which is why the PM hasn’t ruled out government help, if needed. That comes at as cost, as we saw from the support through the Covid pandemic and Ukraine-war triggered energy crisis, with the nation’s debt soaring to more than £2.8trillion, equivalent to around £40,500 per person in the UK. And thanks to recent events, the cost of servicing the national debt has risen again because of higher gilt yields.
It is impossible to predict how long the conflict will last, and what will happen. As we’ve seen today, with oil prices leaping to a near $119 a barrel and then below $100, anything can happen. But the cost of living is guaranteed to be firmly on voters’ minds ahead this May’s elections, and beyond. Hence why the actions Trump has taken threaten to have huge political, as well as economic, consequences for many years to come.
There is even talk of inflation soaring back to 5% and even the risk of recession. We’re entering unchartered territory but the fall-out could be seismic.
