16 hours ago
Three ways latest Middle East crisis could make life more expensive in the UK
One of the big lessons from Russia's invasion of Ukraine in 2022 was how a war hundreds of miles away can have an impact on daily life in the UK.
As the price of a barrel of oil shot up, so did our energy bills, and the cost-of-living crisis that was already hitting households hard was exacerbated.
It now appears that Iran and Israel are on the path towards a full-scale regional war, with neither country paying much attention to international calls for calm heads.
As death tolls rise and destruction spreads, many Brits will be concerned about where it's all going to end – and wonder if we're likely to see a repeat of three years ago.
Asked if the government could step in to pay steep energy bills, as the Conservatives did in 2022, Chancellor Rachel Reeves told the BBC: 'I'm not taking anything off the table.'
However, she cautioned: 'We're not anywhere near that stage at the moment – indeed, in July, average energy bills are going to come down by about £100 a year.'
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Unsurprisingly, events in the Middle East – one of the world's top oil producing regions – have an impact on the price of oil.
Following Israel's attack on Iranian nuclear and military sites on Friday, the cost of a price of a barrel of oil jumped sharply. But there's a risk the knock-on effects for Brits are much more broad.
The increase in energy prices largely resulting from Russia's invasion of Ukraine in 2022 was so significant, the government decided to step in and offer an 'energy price guarantee'.
If it had not, the price cap for bills could have been pushed north of £4,000 for the typical household.
The invasion pushed oil prices to almost $130 a barrel, meaning costs to suppliers soared, and that was passed down to customers.
After an initial jump of 10% after Israel's first strikes on Friday, the cost of a barrel of oil has dropped back to $75 – lower than it was in January.
But the big question is whether this conflict will continue for more than a few days or a couple of weeks. That could result in higher prices on a more sustained level, which could feed through to bills.
The Bank of England's base interest rate has a direct impact on households across the country, as it is widely used to set the interest rate on mortgages.
It's also used by the Bank to try and push down inflation when it gets a bit too high – when the interest rate is increased, people spend less in the economy, which brings down inflation.
Since inflation in the UK has fallen from its extreme high in 2022, the Bank has steadily decreased its interest rate over the past year, easing the pressure on people with a mortgage to pay.
But high energy prices mean items in shops get more expensive, and if they become more expensive than they were a year ago – well, that's the definition of inflation.
Dr Muhammad Ali Nasir, an Associate Professor in Economics at the University of Leeds, explained the potential impact.
He told Metro: 'If the increase in energy prices causes another round of sharp increase in inflation, the central bank could change the direction of their policy and start to increase the interest rates again, causing more pain to the household and firms in terms of their borrowing costs.'
A sustained increase in energy prices would be enough to increase the cost of a weekly shop in the UK on its own.
But that's not the only way the conflict between Israel and Iran could have an impact.
There have been concerns Iran could try to block the Strait of Hormuz, a vital supply line for global oil as it links the oil fields of the Persian Gulf to the Arabian Sea and wider ocean.
But Dr Nasir suggested events could lead Iran's Houthi allies to step up their attacks on ships in the Red Sea, which leads to the Suez Canal.
He said: 'This could be a massive shock to global trade which is already suffering due to the [US-China] trade war.
On top of that, the economist said there is a 'sharp increase in the uncertainty around the economic and trade policy due to the conflict' as the world wonders what will happen next.
'Overall, this conflict is the last thing the global economy wants at the moment,' he said, before adding: 'Of course, loss of human life is an even bigger issue.'
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