The average UK household will be £480 worse off this year due to higher fuel prices and energy bills inflated by the conflict in the Middle East, new research suggests.
According to think tank the Resolution Foundation, middle-class households will bear the brunt of price rises, having previously been projected to see a £300 boost this year.
The forecasts come as the ongoing conflict sends oil and gas prices surging, with experts warning that household gas and electricity bills could rise sharply in the summer, as higher prices are expected to last for months despite the ceasefire between the US and Iran.
The Resolution Foundation said that middle-class households were on track to see their living standards improve by 0.9% this year before the war began - however the income of the average household will now shrink by 0.6% this year instead, making them £180 worse off.
The poorest fifth of households will see their incomes increase by 1.2% on average after above inflation benefit increases, a downgrade from the previously projected growth of 2.8%.
Those with three or more children who are in the bottom half of UK earners will see their living standards rise by an average of 7.7%, following Labour’s abolition of the two-child benefits cap.
The think tank has urged the government to speed up work on an energy social tariff to offer targeted support to struggling households.
The energy price cap will remain at £1,641 until the end of June, but experts warn it could then rise dramatically, with market analysis firm Cornwall Insight forecasting it could go up by as much as £288 for the average household.
The analysis assumes a petrol price of £1.50 a litre and a diesel price of £1.80, consistent with a Brent crude oil price of $100 a barrel - however while Brent dropped towards $95 last week after the ceasefire was announced, peace talks failed over the weekend threatening to send prices soaring higher.
The RAC said on Friday that petrol and diesel prices had increased for 40 straight days since the war began, but the rate of increase had slowed at the end of last week as global oil prices eased.
James Smith, the think tank’s chief economist, said: “Despite hopes for a sustained peace, the path of this conflict remains uncertain and energy prices remain well above pre-war levels, meaning many households face a decline in their purchasing power this year.
“This squeeze will run right through the income distribution. Lower-income households will still see some income growth thanks to a long-awaited rise in real benefit levels, but inflation will likely knock more than a percentage point off what they stood to gain. For those in the middle and towards the top of the income distribution, even the thin growth they had been expecting has tipped into negative territory.
“Deescalation is certainly welcome, but damage to household finances this year is to a large degree already done. The Government should act now to prepare a social tariff that reaches households falling through the cracks this winter.”
Prime Minister Keir Starmer has pledged to tackle the rising cost of living, telling households earlier this month that, while the conflict will “affect the future of our country”, the UK is “well-placed to weather it”.
Chancellor Rachel Reeves said the Government’s focus was on the hardest hit, writing in The Sunday Times: “We are taking action to keep costs down for families and provide support for those who need it most.”
A Treasury spokesperson said: “We know consumers are paying more because of the war in the Middle East. This is not our war and that is why we did not join it. The priority is a peace deal and supporting families through this crisis.
“We are already taking £150 off energy bills, extending the 5p fuel duty cut, supporting households using heating oil, boosting pay for millions, and freezing rail fares and prescription charges.”
Tory Shadow Chancellor Sir Mel Stride said: “While Rachel Reeves doles out a benefits bonanza, millions of hard-working families are being taken for a ride - and watching those on welfare leapfrog them.
“If you work, you should be better off. It's that simple.”
William Yarwood, media campaign manager at the TaxPayers' Alliance said: “Taxpayers will struggle to understand why they're being squeezed while welfare recipients are set to see significant gains.
“Ministers must reverse course, restore the cap and rebuild a system where hard-work is rewarded, not penalised.”
