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

Any rise in rates would increase the cost of borrowing and also the return on savings. More than seven million homeowners have fixed-rate mortgages – that's 87% of all mortgages. The interest rate on a fixed mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it. In its report, the Bank's rate-setting committee says that, over the next three years, average monthly payments for those moving on to a new deal are expected to rise by approximately £80. But it stresses that is an average and there could be considerable variation, and that estimate will depend partly on the outlook for energy prices, which have a wide economic impact. 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.

For a household using a typical amount of gas and electricity, the current annual bill is £1,641. The Bank suggests this will rise "close to £1,900" in July and stay there for the rest of the year. However, the peak will not be as high as it was following Russia's invasion of Ukraine in 2022. 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 , 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.

Food and fuel are essentials. Everyone needs to eat and heat. 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. That is a lot harder for lower-income families. During Covid lockdowns some families had managed to . But now, compared with when prices soared in 2022, a greater proportion of lower-income households have less than two weeks of income d, the Bank says. Opportunities to borrow are greater, but that comes with its own challenges. Despite a surprise drop in the most recent jobless rate , UK unemployment has been steadily rising over the last year. The Bank warned unemployment could rise further due to households erring on the side of caution and choosing to 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. However, some committee members noted that higher inflation could impact 2027 wage negotiations. Unemployment Inflation Bank of England Pay