Rising energy costs caused by the escalating conflict in the Middle East are set to take almost £500 off the average UK family’s income this year, according to new analysis by the Resolution Foundation.
The thinktank warned on Monday that the rise in the price of gas, electricity and fuel will fundamentally change the way of life by 2026. Before the Iran war broke out in late February, elderly households were tracking income growth of 0.9 percent. That figure has now dropped to 0.6%, which equates to £480 per household.
Brent crude climbed back above $100 a barrel on Monday, driven by continued uncertainty over the conflict’s path. Israel’s continued bombing of Lebanon, despite a two-week ceasefire between Washington and Tehran last Wednesday, and Donald Trump’s blockade of the Strait of Hormuz and Iranian ports have raised new doubts about any possibility of a quick solution.
In the UK’s five poorest households, the picture is stark. Average income growth for the group is now expected to reach just 1.2 percent, roughly half of the 2.8 percent forecast before the US and Israel launched strikes on Iran on February 28.
There is one exception. Families in the lowest income bracket with three or more children will benefit from the removal of the two-child benefit limit, which the Foundation estimates will deliver a 7.7 percent increase in income, even after the shock of inflation. Conversely, poor families with less than three children face stunting.
Jonathan Marshall, the Foundation’s chief economist, said household energy bills will rise again this summer, effectively canceling the average £117 saving brought by Ofgem in reducing energy prices from April.
Market expectations offer limited comfort. JPMorgan Chase is forecasting crude oil prices above $100 a barrel during the current quarter to June, with some reductions expected in the second quarter. Goldman Sachs last week cut its forecast for Brent crude to $90 a barrel in the second quarter, down from $99.
James Smith, chief economist at the Resolution Foundation, said the damage to household finances was already being looked at regardless of how the conflict started, and called on the government to push ahead with a welfare tax before the winter to support the most vulnerable families.
The Foundation’s intervention adds new urgency to a debate that has been raging in Westminster for months. With energy costs set to bite when temperatures drop later this year, ministers are under increasing pressure to go beyond the price cap and deliver targeted aid to those most vulnerable to cost cuts.
