The incoming Prime Minister faces a renewed cost-of-living squeeze as conflict in the Middle East intensifies, raising the likelihood of higher energy bills and food prices. Mortgage rates are also creeping up as the resumption of hostilities between the U.S. and Iran sends fresh shocks through the global economy just as Andy Burnham prepares to take office.
For millions of workers, wages are barely keeping pace with rising prices, indicating a probable squeeze on living standards in the coming months. Higher gas and electricity bills are already a concern, following a 13 percent increase in the energy price cap at the start of July, which raised the typical annual bill by £221 to £1,862. Ofgem is expected to announce the price cap for October next month, potentially leading to further strain as the UK enters the winter months.
The economic outlook has been significantly influenced by events in the Middle East since U.S. President Donald Trump launched military action against Iran in February. That conflict initially sent oil prices soaring, contributing to higher prices at the pump and increased gas and electricity bills, alongside fears of more costly food. Although these pressures eased with a peace deal last month, the accord has since collapsed, suggesting households are likely to feel the financial pinch once more.
Motorists are among those experiencing price pressures. According to RAC figures, petrol prices have increased by 2 pence per liter since reaching a three-month low on July 6. An RAC spokesperson noted that "The increases are likely to keep coming thick and fast as the cost of a barrel of oil has gone from the low $70 mark to mid-$80s in just under two weeks."
Food prices also face volatility. Official figures for May showed food price inflation had fallen to 2.2 percent. However, experts are concerned that the renewed conflict could alter this trend. The possibility of rising inflation has revived fears of interest rate hikes this year, prompting lenders to adjust their offerings. Figures from Moneyfacts on Friday indicated that average mortgage rates had climbed for the first time since Easter, with 13 major lenders increasing borrowing costs.
Consumer price index inflation figures for June, due this week, are anticipated to show a slight decrease to 2.6 percent from 2.8 percent in May. However, an increase for July is expected if oil and gas supplies from the Middle East are disrupted by the potential closure of the Strait of Hormuz.
The continuing conflict in the Middle East could spell trouble for the incoming Prime Minister.
