A think tank estimates the combined impact of fuel price hikes and the threat of higher energy bills means many households face a real terms fall in incomes this year
The average UK family will be £480 worse off this year because of the Middle East war, a think tank predicts.
The Resolution Foundation says many households’ incomes will fall after the impact of higher inflation caused the fall-out from the conflict. The blow is a result of an energy shock due to a surge in oil prices, which has already left millions of driving reeling from pain at the pump.
Experts warn household gas and electricity bills could also rise sharply in the summer, piling on pressure for cost of living ravaged households. According to the Resolution Foundation, the average working-age household will be £480 worse off this year than they would have been if the conflict had not taken place. Whereas their incomes had previously been on track to grow by 0.9%, it says they are now set to suffer a fall of 0.6%.
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Critics have dubbed the surge in costs “Trumpflation”, given the economic impact of US Donald Trump – along with Israel’s – war on Iran. The figure is based on petrol prices remaining at around where there are – £1.50 per litre for unleaded and £1.80 per litre for diesel – and oil prices staying about at $100 per barrel, and Ofgem’s energy price cap rising to £1,929 a year from July as forecast by industry experts Cornwall Insight at the end of March.
Despite what it calls “long-overdue” above inflation benefit increases for the poorest fifth of households, it says their average incomes will rise by just 1.2% this year, down from 2.8% before the conflict. The Foundation is urging the government to speed up work on a energy social tariff ahead of winter, when costs will hit hardest, to offer targeted support to struggling households.
James Smith, its chief economist, said: “Despite hopes for a sustained peace, the path of this conflict remains uncertain and energy prices remain well above pre-war levels, meaning many households face a decline in their purchasing power this year. This squeeze will run right through the income distribution. Lower-income households will still see some income growth thanks to a long-awaited rise in real benefit levels, but inflation will likely knock more than a percentage point off what they stood to gain. For those in the middle and towards the top of the income distribution, even the thin growth they had been expecting has tipped into negative territory.
“Deescalation is certainly welcome, but damage to household finances this year is to a large degree already done. The Government should act now to prepare a social tariff that reaches households falling through the cracks this winter.”
