Rising energy prices caused by the ongoing conflict in Iran are set to hit British households, potentially derailing a fragile recovery in living standards, according to a report by the Resolution Foundation.The analysis warns that a typical working-age household in the UK could be nearly £500 worse off this financial year, as higher fuel and energy costs eat into incomes.The think tank estimates that household incomes will fall by about 0.6 per cent this year, reversing earlier expectations of a 0.9 per cent rise.This shift reflects surging energy prices in global markets following tensions linked to the Iran war, even as some easing has been seen after a ceasefire.James Smith, chief economist at the foundation, said the damage is already visible: “Even modest income growth expected earlier has now tipped into negative territory for many households.”
Middle-income households worst hit
While lower-income families may see limited gains due to welfare adjustments, the squeeze is expected to be widespread.
- Real income growth for poorer households is likely to slow significantly.
- Middle- and higher-income groups are expected to see incomes decline.
- Inflation could wipe out much of the expected financial improvement.
The report mentioned that support measures such as benefit increases may cushion the poorest, but will not fully offset rising living costs.
Pressure on govt finances
Chancellor Rachel Reeves has ruled out large-scale universal subsidies like those introduced after the Ukraine war, citing pressure on public finances.Instead, the government is expected to focus on targeted support for vulnerable households, while also exploring measures to prevent excessive price increases.Officials have already taken limited steps, including support for households dependent on heating oil and enhanced regulatory oversight.The economic impact extends beyond households. A survey by Deloitte found business confidence has fallen to its lowest level since the early stages of the Covid-19 pandemic.Companies are facing rising costs and uncertainty, which could weigh on investment and hiring decisions in the coming months.The warning comes as Prime Minister Keir Starmer faces increasing pressure over his pledge to improve living standards during the current parliamentary term.According to economists, the latest shock highlights the UK’s vulnerability to global energy markets, with the current crisis echoing the inflation surge sparked by Russia’s invasion of Ukraine in 2022.Despite hopes of stabilisation, analysts warn that the full impact of the conflict will continue to be felt throughout the year.
