A leading thinktank has warned that the Middle East crisis could trigger an energy price shock, potentially wiping out the £300 rise in living standards expected for typical working-age households this year. The Resolution Foundation said rising oil and gas prices, driven by the Iran conflict disrupting supplies, could reverse gains for lower-income households and add £500 to annual energy bills.
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. While the effect may not be as large as the Russian invasion of Ukraine, a rise in energy prices could add a percentage point to UK inflation.
According to the thinktank's analysis, 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, mainly due to the lifting of the two-child benefit cap and an above-inflation increase in universal credit. However, a persistent jump in energy prices could reverse these gains.
James Smith, research director at the Resolution Foundation, called for the government to develop a social tariff to protect low-income households from any energy shock, warning that across-the-board support, as seen under Liz Truss, proved very costly. The Institute for Fiscal Studies echoed this, arguing that targeted help is preferable to broad support packages that increase debt.
The Joseph Rowntree Foundation added that the situation could be worse, noting that the chancellor's claim of a £1,000 rise in living standards by the next election ignores housing costs. Their modelling suggests average annual household disposable incomes will grow by only £40 over the current parliament after adjusting for inflation.
