Rising energy costs triggered by the escalating Middle East conflict are on course to strip nearly £500 from the finances of a typical UK household this year, according to new analysis from the Resolution Foundation.
The thinktank warned on Monday that surging gas, electricity and petrol prices had fundamentally altered the outlook for living standards in 2026. Before the Iran war erupted in late February, working-age households were tracking towards modest income growth of 0.9 per cent. That figure has now swung to a projected decline of 0.6 per cent, a turnaround worth £480 per household.
Brent crude climbed back above $100 a barrel on Monday, driven by continued uncertainty over the conflict’s trajectory. Israel’s ongoing bombardment of Lebanon, despite a two-week ceasefire brokered between Washington and Tehran last Wednesday, and Donald Trump’s blockade of the Strait of Hormuz and Iranian ports have cast fresh doubt over any prospect of a swift resolution.
For the poorest fifth of UK households, the picture is particularly stark. Average income growth for this group is now expected to reach just 1.2 per cent, barely half the 2.8 per cent forecast before the US and Israel launched strikes on Iran on 28 February.
There is one notable exception. Families in the lower half of the income distribution with three or more children stand to benefit from the abolition of the two-child benefit limit, which the Foundation estimates will deliver income growth of 7.7 per cent, even after the inflation shock. By contrast, poorer families with fewer than three children face zero growth.
Jonathan Marshall, the Foundation’s principal economist, said household energy bills were set to climb again this summer, effectively cancelling out the £117 average saving delivered by Ofgem’s reduction of the energy price cap from April.
Market expectations offer limited comfort. JPMorgan Chase is forecasting crude oil prices above $100 a barrel through the current quarter to June, with some easing anticipated in the second half. Goldman Sachs last week trimmed its forecast for Brent crude to an average of $90 a barrel in the second quarter, down from $99.
James Smith, chief economist at the Resolution Foundation, said damage to household finances was already largely baked in regardless of how the conflict developed, and called on the government to press ahead with a social tariff ahead of winter to support the most vulnerable households.
The Foundation’s intervention adds fresh urgency to a debate that has been simmering in Westminster for months. With energy costs set to bite hardest when temperatures fall later this year, ministers face growing pressure to move beyond broad-brush price caps and deliver targeted relief to those most exposed to the cost squeeze.
Jamie Young
Jamie is Senior Reporter at Business Matters, bringing over a decade of experience in UK SME business reporting.
Jamie holds a degree in Business Administration and regularly participates in industry conferences and workshops.
When not reporting on the latest business developments, Jamie is passionate about mentoring up-and-coming journalists and entrepreneurs to inspire the next generation of business leaders.
