The ongoing Middle East crisis could trigger an energy price shock that wipes out the expected £300 rise in living standards for typical working-age households this year, according to the Resolution Foundation. The thinktank warned that rising oil and gas prices, driven by the Iran conflict disrupting supplies, could reverse gains for lower-income households.
If the recent jump in energy prices persists, the foundation said all gains could be eliminated. A rise in oil and gas prices could add a percentage point to UK inflation and £500 to typical annual energy bills, though the effect may not be as severe as the spike caused by Russia's invasion of Ukraine.
The UK's reliance on gas from the Middle East makes it especially vulnerable to a blockade of the Strait of Hormuz, through which about 20% of the world's liquid natural gas is transported. The Resolution Foundation's analysis of the spring forecast shows living standards for typical working-age households are on track to grow by £300 over the next year, or 0.9%.
Lower-income households are set for a larger rise of £800, up 3.9%, mainly due to the lifting of the two-child benefit cap and an above-inflation increase in universal credit. However, a fresh energy price shock risks reversing this progress.
James Smith, research director at the Resolution Foundation, called for the government to develop a social tariff to protect low-income households, warning that across-the-board support packages are costly. The Institute for Fiscal Studies echoed this, noting that such support contributed to rising debt.
The Joseph Rowntree Foundation argued that the situation could be worse, with average annual household disposable incomes projected to grow by only £40 over the current parliament after adjusting for inflation and housing costs.
