Financial Protection During Iran Conflict: Energy, Pensions, and Savings
From pensions to mortgages and energy bills, the war in Iran is poised to significantly affect household finances. While the severity and duration remain uncertain, a fresh wave of inflation appears likely, posing particular challenges for those on lower incomes. However, financial experts suggest there are actionable steps to mitigate the worst effects and safeguard your money during this turbulent period.
Energy Bills: Navigating Price Rises
Currently, customers are largely shielded from immediate price hikes due to the government-imposed energy cap of £1,641, which limits average household payments per unit of gas or electricity until June. However, when the next quarter's rate is announced at the end of May—based on prices from mid-February to mid-May—analysts predict an increase. Cornwall Insight forecasts the cap could rise to £1,973 annually from July 1.
One strategy to avoid this rise is opting for a 12-month fixed deal, though even the cheapest options, such as Sainsbury’s Energy at £1,862, exceed the current cap. This could prove beneficial if the cap surges past that figure, but risky if the conflict ends and energy costs drop. Since early March, approximately 60 fixed-rate energy deals have been withdrawn or repriced upward.
Laura Suter, director of personal finance at AJ Bell, notes: "The energy price cap from Ofgem helps protect people from immediate increases, so bills won't change just yet. Those on fixed-rate tariffs remain shielded for the deal's duration. But if higher prices persist, the cap could rise later in the year."
Amid rising costs, some households resort to analogue methods like hand-washing dishes or drying clothes on radiators, believing they cut expenses. Yet, data reveals modern dishwashers use far less water, and radiator-drying increases boiler workload and moisture, making heating more expensive.
Pensions: Long-Term Stability Amid Volatility
Pensions have experienced wobbles, but as long-term investments, this may not be critical. UK funds often hold oil giants like BP and Shell, likely to see profit surges—beneficial for investors. However, pensions also contain government gilts, which are falling as confidence in the UK economy wanes, though this is expected to correct over time.
Tom Selby, director of public policy at AJ Bell, advises: "Many pension savers may already see impacts from global stock market volatility, potentially causing dips in their accounts. Short-term hits shouldn't alarm; history shows staying invested beats market timing. Use this as a prompt to review portfolios for diversification across regions and asset classes, ensuring alignment with long-term goals."
For those far from retirement, maintaining current strategies is recommended. Those nearing retirement should reassess investments to avoid short-term volatility. Selby adds: "As you approach accessing your pension, ensure your investment approach matches your plans. If aligned, short-term instability shouldn't force strategy changes. Problems arise if investments and retirement plans mismatch, such as holding 100% equities while planning to buy an annuity soon."
Travel: Rising Costs and Staycation Trends
Flying is set to become more expensive, potentially boosting "staycations," making early bookings wise if demand grows. For holiday money, predicting pound strength is tricky, but exchanging half now and half closer to the trip can smooth shocks.
Fuel and holiday costs may rise, with small oil price increases adding pence per litre, hiking commuting and airline expenses. Travellers can offset this by booking early, locking in exchange rates, or choosing destinations where sterling stretches further. Staycations in the UK may grow more attractive to avoid high flight prices.
Drivers already feel the impact: petrol has risen 12p per litre since the Iran conflict began, with diesel doubling that.
Savings: Combating Inflation Erosion
Inflation erodes savings, so ensuring they work hard is crucial. Shopping for the best rates, using tax-efficient wrappers like ISAs, and avoiding low-interest accounts can help preserve spending power. Historically, investing is the best inflation-beater; despite recent market rocky, long-term investing could counter inflation increases.
Mortgages: Higher Borrowing Costs Ahead
Previously, borrowers anticipated two or three Bank of England interest rate cuts, but now increases are more likely. No cuts this year means borrowing costs stay higher longer, benefiting savers but challenging borrowers. Those remortgaging should consider locking in deals six months before fixed rates end for certainty, with options to switch if rates fall.
Rachel Springall from Moneyfacts states: "The mortgage market faces ongoing upheaval. Borrowers must seek independent advice to navigate the mayhem." Rates for those with 5% deposits exceed 6%.
Investing: Staying Calm Amid Market Swings
Investors have seen markets swing sharply during uncertainties like trade wars, Covid, and Russia's invasion of Ukraine, with similar patterns emerging from the Iran conflict. Jonathan Raymond, investment manager at Quilter Cheviot, says: "Panic can take hold quickly, but reacting emotionally rarely improves outcomes. Over decades, markets have risen and fallen through crises; selling after drops often locks in losses and misses recoveries."
Experts advise staying invested and enduring volatility rather than timing the market, as exiting risks missing the best days. Dan Moczulski, eToro's UK managing director, adds: "If inflation is a concern, being invested is key. Diversification across stocks, commodities, bonds, and even crypto reduces exposure to single risk factors."
