Rising energy costs caused by the escalating Middle East conflict will cost almost £500 from the finances of a typical British household this year, according to new analysis from the Resolution Foundation.
The think tank warned on Monday that rising gas, electricity and petrol prices had fundamentally changed the outlook for living standards in 2026. Before the Iran war broke out in late February, working-age households expected modest income growth of 0.9 percent. This figure has now fallen to a forecast fall 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 course of the conflict. Israel’s ongoing bombardment of Lebanon despite a two-week ceasefire negotiated between Washington and Tehran last Wednesday and Donald Trump’s blockade of the Strait of Hormuz and Iranian ports have raised new doubts about the prospect of a quick solution.
For the poorest fifth of British households the picture is particularly bleak. Average income growth for this group is now expected to reach just 1.2 percent, barely half the 2.8 percent forecast before the U.S. and Israeli attacks on Iran on February 28.
There is one notable exception. Families in the bottom half of the income distribution with three or more children will benefit from the abolition of the two-child limit, which the foundation estimates will lead to income growth of 7.7 percent even after the inflation shock. In contrast, poorer families with fewer than three children experience zero growth.
Jonathan Marshall, the foundation’s chief economist, said household energy bills were expected to rise again this summer, effectively wiping out the average saving of £117 made by Ofgem by cutting the energy price cap from April.
Market expectations offer limited comfort. JPMorgan Chase forecasts crude oil prices will top $100 a barrel for the current quarter through June, with some easing expected in the second half of the year. Goldman Sachs last week cut its forecast for Brent crude oil to an average of $90 a barrel in the second quarter from $99.
James Smith, chief economist at the Resolution Foundation, said the damage to household finances was already largely contained, regardless of how the conflict unfolds, and called on the government to push forward a social tariff before winter to support the most vulnerable households.
The foundation’s intervention brings new urgency to a debate that has been simmering in Westminster for months. With energy costs expected to be felt hardest when temperatures fall later this year, ministers are under growing pressure to move beyond blanket price caps and provide targeted relief for those most exposed to cost pressures.
