The average UK family is projected to be £480 worse off this year as a direct consequence of the ongoing Middle East conflict, according to a stark new analysis from a leading economic think tank.
Energy Shock Drives Real-Terms Income Decline
The Resolution Foundation has issued a sobering assessment, indicating that many households across the nation will experience a real-terms fall in their incomes throughout 2026. This financial blow stems primarily from an energy shock, fuelled by a surge in global oil prices following the outbreak of war. The conflict has already inflicted significant pain at the petrol pumps for millions of drivers, with further pressure expected from potential sharp increases in household gas and electricity bills during the summer months.
Quantifying the Financial Impact
The think tank's detailed modelling reveals that the average working-age household will be £480 poorer this year than they would have been if the Middle East conflict had not occurred. This represents a dramatic reversal of fortune. Previously, household incomes were on track to grow by 0.9%. However, the Foundation now forecasts a contraction of 0.6%, directly attributable to higher inflation driven by the war's economic fallout.
The £480 figure is based on a series of critical assumptions: petrol prices stabilising at approximately £1.50 per litre for unleaded and £1.80 for diesel, oil prices remaining around $100 per barrel, and Ofgem's energy price cap rising to £1,929 annually from July, as forecast by industry analysts Cornwall Insight.
Uneven Impact Across Income Brackets
While the income squeeze is expected to affect households across the board, its severity will vary. The report notes that, despite what it describes as "long-overdue" above-inflation benefit increases for the poorest fifth of households, their average income growth is now projected at just 1.2% this year, a significant reduction from the 2.8% anticipated before the conflict.
James Smith, chief economist at the Resolution Foundation, provided a clear analysis of the situation. "Despite hopes for a sustained peace, the path of this conflict remains uncertain and energy prices remain well above pre-war levels, meaning many households face a decline in their purchasing power this year," he stated. "This squeeze will run right through the income distribution."
Smith elaborated further, explaining that lower-income households will still see some income growth due to increased benefit levels, but inflation is likely to erode more than a percentage point of their potential gains. For middle and higher-income households, the modest growth they had expected has now tipped into negative territory.
Call for Government Action on Social Tariff
In response to these alarming projections, the Resolution Foundation is urging the government to accelerate the development of an energy social tariff. The think tank argues that targeted support is essential to help struggling households, particularly ahead of the winter period when energy costs traditionally hit hardest.
"Deescalation is certainly welcome, but damage to household finances this year is to a large degree already done," warned James Smith. "The Government should act now to prepare a social tariff that reaches households falling through the cracks this winter."
The report underscores a broader economic phenomenon that some critics have labelled "Trumpflation," referencing the combined economic impact of the US and Israeli military actions in the region. With energy bills and soaring petrol prices identified as key cost drivers triggered by the war, the financial pressure on UK families shows no immediate sign of abating, setting the stage for a challenging year for household budgets nationwide.
