Donald Trump’s war against Iran has sent global financial markets and energy prices into turmoil, sparking fears of a fresh cost of living crisis in the UK.
Chancellor Rachel Reeves warned this week that the economic challenges from the conflict in the Middle East may be “significant”, as global oil and gas prices surge, hitting motorists as they fill up at the pumps and potentially pushing up domestic energy bills later this year.
Speaking to MPs on Tuesday, in response to calls for the government to step in, the chancellor promised contingency planning is underway for energy bill support “for those who need it most”, especially when the current energy price cap expires at the end of June.
It came after Sir Keir Starmer admitted he told his top team they must not fall into a sense of “false comfort” in thinking the war, launched by the US and Israel on 28 February, will have “a quick and early end”, bringing fears that the worst is yet to come for UK households.
As a result of the fluctuating rise and fall of oil and gas prices threatening another inflation shock for UK households, commentators have resurfaced the term “Trumpflation”, with Britons facing a rise in their fuel bills, the cost of their weekly shop, or when securing a mortgage deal. The term was originally coined by economists concerned about the inflationary potential of Mr Trump’s economic policies during the run-up to the US president’s first term in office.
Below, The Independent takes a look at what this all means for Britons.
Petrol and diesel prices
Drivers have been hit with a fresh blow as petrol and diesel have risen in cost again, new figures from the Department for Energy Security and Net Zero showed this week.
The average pump price of a litre of unleaded petrol in the UK stood at 144.2p on Monday, up 3.9p week on week and a jump of 12.0p since 2 March, according to the figures. This is the highest price for unleaded petrol since July 2024.
Meanwhile, the average price of a litre of diesel stood at 166.9p on Monday, up 8.1p week on week and an increase of 24.7p since 2 March – marking the highest price for diesel since March 2023.
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In response to the US’ initial attacks, Iran has implemented an effective blockade of the Strait of Hormuz, a key waterway for global oil supply.
As bills soar, and with fuel duty set to rise in September, the Competition and Markets Authority is being given new powers to clamp down on price gouging.
Energy bills
The average annual household energy bill is predicted to rise by £332 in July.
But in her statement to the Commons on Tuesday, Ms Reeves said millions will get no help with soaring energy costs, as Labour is set to offer targeted rather than universal support.
The chancellor hit out at the last Conservative government for providing “blanket” support in the wake of Russia’s attack on Ukraine, which she said had cost the country tens of billions of pounds.
Interest rates
The Bank of England was on course to soon cut interest rates – but then the first attacks began in the Middle East, and days later a decision was made to sit tight at 3.75 per cent.
The next meeting is 30 April and it is unclear what will happen.
While money markets reacted strongly and two-year bond yields spiked enough to bet on four rate hikes, that was never seen as a serious prospect by economists, with some analysts still forecasting a potential rate cut much later in the year.
Two areas linked to interest rates that have changed already are mortgages – more on those below – and savings, where, due to both the prospect of higher rates for longer and the timing being right before the end of the tax year, we are seeing some better deals, with above 4 per cent easily attainable.
Inflation
It is more difficult to predict exactly the impact of the war on overall UK inflation, in part because the numbers are backwards-looking, with economists already revising their forecasts for later in 2026.
On Wednesday, inflation held firm at around 3 per cent – but this is data for February, and it is March figures that will start to show the direct knock-on effect of the war.
What is certain though, is that we were on track for 2 per cent inflation by spring before the attacks on Iran began, while now it is looking certain that we will be seeing a significant reversal instead.
Thomas Pugh, chief economist at RSM UK said: “Inflation is expected to rise in March as the initial impact of higher fuel prices begins to show up in the official data. As pump prices rise to around £1.60 per litre by April, we expect inflation to fall only a little, compared to previous expectations of slowing to 2 per cent. Further ahead, the rise in natural gas prices will see Ofgem increase the energy price cap in July, exerting further upwards pressure on inflation and taking it back over 3 per cent.”
Mortgages
The disappearance of sub-4 per cent mortgages from the market from all the big lenders is a sign of how fast matters have swung domestically.
While mortgage deals are loosely tied to the BoE interest rate, what really impacts them are swap rates. These are contracts traded on money markets and they can change very fast in either direction – so as soon as the first missiles hit, they started to elevate. That means the best mortgage rates are swiftly removed and that is why they have risen considerably higher without our base rate ever moving from 3.75 per cent.
As many as 37 per cent of homeowners on fixed-rate mortgage deals believe their mortgage costs are likely to increase in the next few months, according to Barclays’ data, with 8 per cent of mortgage holders saying their deal will expire within three months.
FTSE 100
Although not everyone will immediately feel they are affected when investments fall, the truth is almost all of us are – if you work in the UK and have a workplace pension for example, the chances are it is invested in the stock market, at least in part.
The main index for London-listed businesses, the FTSE 100, was on the cusp of a record milestone of 11,000 points in the lead-up to the war – but not only has it fallen away entirely since then, down around 10 per cent, but the index has also seen all its gains for the calendar year wiped out entirely. As of Tuesday afternoon, it was down 0.65 per cent for 2026 so far, having risen more than 21 per cent across the entirety of 2025.
Heating oil
Almost 2 million homes and businesses across the UK still use heating oil, which is not protected by the energy price cap – although Ms Reeves has insisted that Treasury officials have “found the money” to help.
As with any commodity, prices go higher when demand outstrips supply and the global oil supply is under severe pressure, with the cost of heating oil rising from around 60-1p per litre before the Middle East war broke out, to a high point of about 134p per litre. Today the price is still on the higher end, standing at 129.3p per litre.
Groceries
Food production, which involves an energy-intensive supply chain, is expected to be directly hit by the conflict in the Middle East, a key energy-producing region.
In the worst-case scenario, food inflation could briefly reach over 8 per cent by June 2026, new forecasts from the Institute of Grocery Distribution (IGD) show – more than double the current food inflation rate of 3.6 per cent.
This comes on top of a sustained rise in prices, according to the IGD, with UK retail food prices now around 38 per cent higher than pre‑Covid levels, leaving households far more exposed to further price spikes.
On Tuesday, Ms Reeves announced plans to meet with supermarkets and banks later this week to discuss what help they can offer customers.