A surge in oil prices due to the escalating conflict in the Middle East has prompted fears of a new cost of living crisis in the UK.
Experts are warning that rising prices and energy bills could fuel higher inflation, having a knock-on impact on mortgages, savings and spiralling food costs.
Markets are bracing for longer-lasting volatility as the US and Israel continue to strike Iran, with Tehran authorising revenge attacks in countries across the region and impacting the passage of goods through the Strait of Hormuz.
Oil prices could be headed for their biggest weekly increase in six years, with the price of Brent crude oil rising on Friday to surpass $88 (£65) a barrel, its highest price since April 2024.
If the gains hold through to the end of the day, when markets close, then it would mark the biggest weekly increase since the Covid-19 pandemic.
Greg Jackson, the chief executive of Octopus Energy, told Times Radio that energy markets were “in a state of turmoil” after Iran warned ships not to pass through the waterway, and Qatar said it had halted gas production following attacks on its plants.
Disruption to shipping routes has also sent wholesale prices soaring this week, as firms react to a combination of security threats, insurance constraints and operational uncertainty.
A raft of major energy suppliers have pulled fixed-price tariff deals completely, while the UK’s largest household energy supplier, Octopus, said it has increased tariffs and introduced exit fees in the face of soaring gas and oil prices.
The latest agreed energy price cap means that typical bills will actually fall in April, but experts have predicted that they are likely to rise by around 10 per cent from July, particularly due to higher gas prices.
Meanwhile, new analysis from the Energy & Climate intelligence Unit (ECIU) suggested that oil trading in sustained fashion at $100 (£74) a barrel could see the price per litre of petrol jumping from 135p today to 150p – costing drivers doing 8,000 miles a year close to £140 extra.
At $120 (£89), petrol could increase to around 170p a litre, increasing annual fuel costs by more than £320 a year.
Campaigners FairFuelUK have criticised some petrol stations for apparently pre-empting price rises, while diesel prices have surged to a 16-month high since the start of the conflict.
“One hundred and twenty-plus FairFuelUK supporters have contacted the campaign from all across the UK to report that pump prices have increased in the last 48 hours by an average of 6.7p for petrol and 8.8p for diesel,” said the organisation’s founder, Howard Cox.
“Most of these forecourts, many believe, are selling fuel at these higher prices even though they bought these stocks before any wholesale rises. It seems opportunistic profiteering is rife once again.”
Rachel Winter, partner at Killik & Co, added: “Consumers won’t feel the full price difference at the pump quite yet as many companies buy oil in advance, but this could change if the conflict persists.
“The market seems hopeful for a quick resolution, or for some form of government intervention, as we haven’t seen oil prices rise to levels previously seen during times of significant and prolonged disruption.
“For example, the price of Brent passed $120 (£89) per barrel following Russia’s invasion of Ukraine in 2022, but it currently sits below $90 (£67) despite its recent increase.”
There are also concerns that the energy price surge could see food and drink prices increase in the UK.
Balwinder Dhoot, director of growth and sustainability, The Food and Drink Federation (FDF) said: “However, with the food manufacturers already under strain from years of rising business costs, and food inflation running higher than historical averages, seeing the spike in gas prices will be a concern.
“To help bring down food inflation and protect shoppers from price rises we’ve warned government that it needs to support long-term business resilience and investment.”
Meanwhile, several UK mortgage lenders have begun increasing interest rates as a result of the conflict, with experts warning this could place pressure on the Bank of England to hold off further interest rate cuts.
Nationwide Building Society and HSBC UK have indicated that they will be pushing up some of their mortgage rates from Friday, including for some first-time buyers, home movers, and people switching and remortgaging.
Coventry Building Society is set to increase its mortgage rates on Monday.
Adam French, head of consumer finance at Moneyfacts, said: “It serves as a stark reminder that mortgage costs are not driven solely by domestic policy decisions.
“Global geopolitical events move markets, markets move swap rates, and swap rates ultimately shape the deals available to borrowers – all while the world watches deeply troubling events unfold.”
While the Bank of England held interest rates at 3.75 per cent last month, governor Andrew Bailey had commented that further reductions were likely later this year. However, the impact of the conflict in Iran has made this less predictable with the National Institute of Economic and Social Research forecasting the Bank could be forced to increase interest rates to above four per cent.
The latest interest rate decision will be announced on 19 March.
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