‘Trumpflation’: how the Iran war’s economic storm could affect Britons
Here we go again.For Britons it has been a rollercoaster few years and just as better times seemed ahead the country has been plunged into a fresh cost of living crisis.The economic storm caused by war in the Middle East is already pushing up the cost of key household outgoings, including mortgage payments, energy bills and driving.There are warnings that the weekly shop will be next.We look at how the unfolding economic crisis caused by the war could affect you.
In a few short weeks the Iran war has had a “catastrophic” effect on the UK home loans market with nearly 1,000 mortgage products pulled by lenders,The spike in home loan costs means Britons taking out a new two-year mortgage deal face paying £900 a year more on average than before the Iran war as “Trumpflation” pushes up borrowing costs (based on borrowing £250,000 over 25 years),On Thursday, the Bank of England held rates at 3,75% at its policy meeting,Before the war, the central bank was expected to cut them.
Now the talk is of rate rises.This matters if you are trying to get on the property ladder or your fixed-rate deal is coming to an end.About 1.8m deals are due to end in 2026, and most of these borrowers will need to secure a new mortgage.“The shocks caused by the unrest in the Middle East are having a catastrophic impact on the UK mortgage market,” said Rachel Springall, finance expert at data firm Moneyfacts.
“Since last week, the average two-year fixed mortgage rate has risen by around 0.5%, to 5.35%,” she said, adding that the outlook pointed to more rate increases being on the cards.There is no good news here either.The war has caused an energy price shock that experts think will add more than £300 a year to a typical household energy bill.
In the short-term, households are shielded from roiling energy markets by the price cap in England, Wales and Scotland which is set by the energy regulator, Ofgem.From April to June, the unit costs set by cap mean the average annual dual-fuel bill works out at £1,641.From July, according to analysis by Cornwall Insight, an energy consultancy, that figure could jump to £1,972 a year.Before the war started it had been possible to secure a fixed energy tariff that could deliver a saving of several hundred pounds versus the price cap, but these deals have evaporated and are unlikely to return until energy prices stabilise.The financial pain has been more immediate for the 1.
5m UK households that use heating oil.The fuel is not protected by the price cap and heating oil customers say the cost of the fuel has more than doubled since the war started.The steep increase has forced the government to put up £53m to support low-income households with the cash to be shared out by local councils.When there is an energy price shock like this, one of the first places price increases show up is at the pumps.Based on the current worrying trajectory, the average price of a litre of unleaded petrol is likely to reach 150p, and diesel possibly 180p, by Easter, says the RAC.
“Since the conflict began, average petrol prices are now almost 12p (9%) higher at 144.51p a litre, with diesel up by twice that amount (24p, 17%) to 166.24p,” said Simon Williams, the head of policy at the RAC.This means the war has added £6.40 to the cost of filling a typical family car with unleaded petrol since the start of the month, while the figure for diesel is a hefty £13.
“The oil price has been consistently above the $100 a barrel mark this week, so unfortunately further rises look all but inevitable going into next week,” continued Williams,“With many people heavily dependent on the car, the pressure on household budgets is beginning to intensify,”Even if you do not drive, the rising price of fuel could affect you,If the cost of transporting food around the UK increases for supermarkets, they could seek to pass that on to shoppers at the checkout,To ease the energy crisis, workers are being urged to carpool or work from home by the International Energy Agency, the world’s energy watchdog.
Drivers are also advised to do their best driving and avoid accelerating or braking too hard to conserve fuel.Petrol and diesel prices can vary hugely at forecourts so, if you have to drive, it is more vital than ever to shop around.Use apps and websites such as PetrolPrices and myRAC to see where fuel is cheapest in your area.“Oil and gas is to business what water is to life,” is the succinct way Stuart Rose, the executive chair of Asda, one of the UK’s biggest food retailers, summed up the reason why surging energy prices matter in an interview on the BBC’s Today programme on Friday morning.While petrol price increases are more immediate, the trickle down to supermarket shelves is more of a slow burn as higher energy costs are gradually passed through the supply chain.
The pressure is already building up in the food system as the prices of crucial farming inputs such as fuel and fertiliser have already surged, just as the spring planting season gets under way and farmers use their tractors more.It is estimated that about a third of the global seaborne trade in fertilisers passes through the strait of Hormuz.Any shortages are expected to push up the price of household staples such as bread, pasta and potatoes and food price inflation is expected to accelerate towards the end of the year, according to analysts at the broker Jefferies.For many Britons, the cost of living crisis has felt never-ending, with food price increases only beginning to normalise after they surged in response to Russia’s full-scale invasion of Ukraine in 2022.Back then, the soaring energy costs and supply chain disruption it caused sent food price inflation to 19.
1%, which was the highest rate since 1977.With the UK economy once again facing turmoil caused by a war thousands of miles away, Rose was clear: “If this goes on for much longer, inevitably there will be price rises.”There have been warnings from within the travel industry that higher jet fuel prices will drive up air fares and that passengers need to book early to secure the holiday they want.Other Britons are more concerned about extricating themselves from trips they do not want to take.Previous conflicts in the Middle East have led to a downturn in bookings to the eastern Mediterranean, lowering prices there, according to the Association of British Travel Agents (ABTA).
However, that can lead to higher prices in places such as Spain and Portugal as travellers head to those destinations instead.It is hard to predict, but Thomas Cook is advising Britons to book holidays or city breaks in advance as prices may increase.Since the war started, the company said it had seen the share of bookings for Portugal and the Balearic Islands rise by more than 40%, and 16% for the Canary Islands.If you have paid a deposit for a trip you no longer want to take, check the T&Cs to understand the cancellation charges.The travel provider may allow you to change your destination or dates for an amendment fee.
Experts say the rise in fuel costs should not trigger massive fare hikes in the short term because airlines buy fuel in advance through a process called hedging,However, if the war runs on, those price contracts will expire and the cost picture will change dramatically,Conroy Gaynor, from Bloomberg Intelligence, noted that persistently high jet fuel prices could theoretically require a 10% to 20% increase in fares for airlines to maintain their profit margins,Your travel insurance will also cost a bit more, especially for travel outside Europe, says Alan Dean of CoverForYou,“This is due to a greater risk you’ll need to claim for cancelling your flight, along with an increased likelihood of delayed flights and curtailed trips.
”The comparison site Go Compare said its data showed that travel insurance costs had risen in most of the areas affected by the Middle East crisis.The average premium for a single trip policy for the United Arab Emirates costs about £8 more than a year ago – a 16% increase.There has also been a near 2% increase for Turkey, it said.
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