Mortgages, jobs and energy bills - how the Iran war will affect your money

The Bank of England's latest report reveals some interesting details on how our finances will be affected due to the Iran war. The central bank kept interest rates on hold this week , but the rate-setting committee's report helped shed some light on what households can expect when it comes to things like mortgages, energy bills and the jobs market. Although the Bank held rates this week, it has signalled that rises could come later this year. In the scenario the Bank governor put most weight on, with energy prices slowly falling, the rate-setting committee's deliberations suggest a rise or two could be on the cards. About 53% of UK mortgage holders are expected to see their payments rise, the Bank says, but around 25% of those who fixed at higher rates should see their payments fall, despite recent increases in rates.

Given events in the Middle East, it was already inevitable that domestic energy bills will rise this summer. The Bank paints a relatively bleak picture, even though uncertainty still dominates. In short, it will take the region – and the wider energy sector – a while to recover in any scenario, so prices will rise. Energy regulator Ofgem's price cap affects the bills of millions of households in England, Scotland and Wales. The Bank suggests this will rise "close to £1,900" in July and stay there for the rest of the year.

Also, nearly 40% of households are on fixed tariffs for electricity and gas, higher than the roughly 25% of households with fixed tariffs when prices shot up four years ago. These households will be protected from higher prices until their contracts end. Those on prepayment meters can use less energy during the warmer summer months. "If prices are still high in the winter, then these households will face larger rises in costs," the Bank says. In every scenario outlined by the Bank, the rising cost of living – as measured by inflation – accelerates this year, with more uncertainty about what happens thereafter.

That is the result of rising energy prices which, in turn, push up the cost of people's food shop. The Bank thinks food price inflation could rise to 4.6% in September, and could go even higher later in the year. So, lower-income households would be harder hit when these prices rise, because paying these bills takes up a greater chunk of their income. The Bank points out that some people can use less energy, or they can dip into savings to pay higher bills. But now, compared with when prices soared in 2022, a greater proportion of lower-income households have less than two weeks of income saved, the Bank says.

The Bank warned unemployment could rise further due to households erring on the side of caution and choosing to save more and spend less. Weaker demand means firms are more likely to reduce hiring, especially if they are also facing rising costs from higher energy prices. Although inflation is expected to rise, the Bank does not necessarily see this feeding through to wages this year as most pay settlements for 2026 have already been completed. Unemployment Inflation Bank of England Pay The Bank of England's latest report reveals some interesting details on how our finances will be affected due to the Iran war. Mortgages, jobs and energy bills - how the Iran war will affect your money