A war being fought thousands of miles away is showing up on UK balance sheets. According to reporting this week, the Centre for Economics and Business Research calculates that the average UK household will be £2,400 worse off by the end of 2027 as a result of the Iran conflict. The hit breaks down as £1,100 off real income in 2026 and a further £1,300 in 2027. Across the country that adds up to £70.4bn wiped from households' real disposable incomes.
For business owners the takeaway is practical. Fuel and power lines in the budget need headroom. Refinancing plans built on a summer rate cut need revisiting. And anyone selling to consumers should assume tighter household budgets well into 2027. "Until energy markets calm, the squeeze will persist," Daly said.
The CEBR points to two channels. The direct one is energy. "Higher energy costs feed straight into bills and into the price of almost everything else, so each pound of pay buys less," said senior economist Liam Daly. The indirect channel runs through interest rates and jobs, and it moves more slowly.
That second channel matters most for smaller firms. Before the war, the Bank of England had been expected to cut rates this year. Instead they have been held, and City traders now expect one rise by December. For an SME carrying variable-rate debt or hoping to refinance, that is a planning assumption gone wrong. Cheaper borrowing was supposed to arrive. It hasn't.
Then there is the demand side. When households lose £2,400, they spend less at the till, the garage and the salon. Discretionary spending is usually the first thing to go, so consumer-facing businesses feel the squeeze before the macro data confirms it.
Energy costs are set to climb again. Ofgem is lifting its quarterly price cap by 4% from October, which flows through to commercial tariffs and to the wholesale prices bigger users negotiate directly. Separately, the Energy and Climate Intelligence Unit estimated last week that higher wholesale oil and gas prices since the start of the US-Iran war on 28 February will add roughly £9.8bn to UK energy and road transport costs, with gas and electricity users paying an extra £190m for every week the conflict runs.