British households to be '£480 worse off this year' as energy prices soar amid US-Iran war

British households are set to lose £480 on average in 2026 as soaring energy prices linked to the US-Iran conflict take their toll, according to analysis by the Resolution Foundation.

The think tank said median incomes are now expected to fall by 0.6 per cent this year, reversing earlier forecasts of 0.9 per cent growth before tensions escalated.

Although the US and Iran agreed a last-minute ceasefire, the economic damage has already filtered through to household finances.

Disruption to energy supplies, including the effective blockade of the Strait of Hormuz, pushed oil and gas prices sharply higher, with the impact now being felt in fuel costs and household bills.

The squeeze on purchasing power will affect families across all income brackets, the Foundation's analysis reveals.

Those on the lowest incomes will still experience some growth in their living standards, with the poorest fifth now expected to see a 1.2 per cent rise rather than the 2.8 per cent forecast before the conflict erupted.

This reduced gain comes despite a long-awaited real-terms increase in benefit payments, with inflation eroding more than a percentage point from what these households stood to receive.

Middle and higher earners face an even bleaker picture, with the modest growth they had anticipated now turning negative.

However, larger families on lower incomes present one bright spot. The abolition of the two-child benefit cap means households with three or more children in the bottom half of earners will see income growth of 7.7 per cent this year.

The energy price cap remains fixed at £1,641 until the end of June, but analysts warn of significant increases thereafter.

Cornwall Insight, a respected energy consultancy, forecast earlier this month that bills could jump by as much as £288 for typical households from the summer, though this projection was made prior to the ceasefire announcement.

The Resolution Foundation acknowledged that the conflict's trajectory remains "highly uncertain" but stressed that elevated energy and fuel costs will "almost certainly be passed on to households" without substantial price falls.

Prime Minister Sir Keir Starmer has sought to reassure the public, stating at the beginning of April that while the crisis "will affect the future of our country", Britain is "well-placed to weather it" through a long-term plan focused on de-escalation.

The think tank is calling on ministers to speed up development of a social tariff for energy bills ahead of the winter months, when heating costs will hit households hardest.

James Smith, the Foundation's chief economist, said: "De-escalation is certainly welcome, but damage to household finances this year is to a large degree already done.

"The Government should act now to prepare a social tariff that reaches households falling through the cracks this winter."

Chancellor Rachel Reeves indicated at the start of April that any support package would be means-tested, though she said it was "too early" to specify the details.

A Treasury spokesperson confirmed that contingency planning is under way "for every eventuality" to keep costs down and provide targeted assistance to those most in need.