Higher energy prices caused by the ongoing conflict in Iran will hit British households and could undermine a fragile recovery in living standards, according to a report by the Resolution Foundation.Typical working-age households in the UK could see their income fall by almost £500 this financial year as higher fuel and energy costs erode incomes, analysis has warned.The think tank estimates that household income will fall by about 0.6% this year, reversing its previous forecast of 0.9% growth.The shift reflects a surge in energy prices in global markets caused by war-related tensions with Iran, despite some easing following the ceasefire.James Smith, the foundation’s chief economist, said the damage was already clear: “Even the modest income growth expected earlier has now slipped into negative territory for many households.”
Middle-income households are most affected
While benefits to low-income households from benefit adjustments may be limited, austerity is expected to be widespread.
- Real income growth among poor households is likely to slow significantly.
- Incomes are expected to fall among middle-income and high-income groups.
- Inflation could offset much of the expected financial improvement.
The report notes that support measures such as increased benefits may cushion the impact on the poorest people, but will not fully offset the rising cost of living.
Government finances are under pressure
Chancellor of the Exchequer Rachel Reeves ruled out large-scale universal subsidies like those introduced after the war in Ukraine, citing pressures on public finances.Instead, the government is expected to focus on targeted support for vulnerable households while exploring measures to prevent excessive price increases.Officials have taken limited steps, including providing support for households that rely on heating oil and tightening regulations.The economic impact is not limited to families. A survey by Deloitte has found that business confidence has fallen to its lowest level since the early days of the Covid-19 pandemic.Companies face rising costs and uncertainty that could impact investment and hiring decisions in the coming months.The warning comes as Prime Minister Keir Starmer faces growing pressure over his pledge to improve living standards during this parliamentary term.Economists said the latest shock highlighted Britain’s vulnerability to global energy markets, with the current crisis echoing a spike in inflation triggered by Russia’s 2022 invasion of Ukraine.Despite hopes for stability, analysts warn that the full impact of the conflict will continue to be felt throughout the year.
