Australian households are bracing for a financial double blow as rising interest rates and petrol prices strip more than £1bn a month from budgets, with economists warning of recession risks. The Reserve Bank of Australia (RBA) has delivered back-to-back rate hikes, pushing the cash rate back to 4.1%, while petrol prices have surged past £2.30 per litre in capital cities due to the US war on Iran.
First-home buyer Dougal Warby, who purchased a Brisbane apartment a year ago, has seen his monthly repayments rise by over £200 as rates rebounded. “Unsettled is the word,” he said, expressing concern about the lack of a long-term plan if fuel shortages persist. The RBA governor, Michele Bullock, acknowledged the pain for mortgage holders but warned that allowing inflation to become entrenched would be worse.
Australia’s 3.3 million mortgage-holding households face losing hundreds from their budgets after hikes in February and March, adding £180 to the typical £600,000 loan. Canstar’s Sally Tindall described it as a “double whammy” of higher mortgage costs alongside rising grocery and petrol prices. AMP modelling shows households are paying an extra £80 a month in petrol costs since the war began.
Westpac analysis predicts unleaded petrol will stay above £2 per litre until June, and a three-month war could halve economic growth. Inflation is expected to hit 4.6% by June, up from 3.8% in January. The big four banks anticipate another rate hike in May, which AMP economist My Bui said would increase recession risks as consumer spending slows and confidence plummets to levels not seen since Covid-19.
Some economists, like HSBC’s Paul Bloxham, argue that a recession may be necessary to curb inflation. Bullock, however, stated that recession is not the aim but acknowledged that further spending declines may be needed. Households are left to navigate an uncertain economic landscape with mounting financial pressures.
