Around 200,000 UK households to be pushed into poverty after Iran war drives bills higher

Britain's lowest-income families risk being pushed into poverty as rising energy bills, petrol prices and food costs drive up the cost of living, economists have warned.

The National Institute of Economic and Social Research estimates that an additional 200,000 households could fall below the poverty line as these pressures build.

Those on the lowest incomes are expected to be hit hardest. Inflation stood at 3.3 per cent in March and is forecast to rise above 4 per cent, even if the conflict is resolved quickly.

At the same time, an economic slowdown is likely to weaken wage growth and increase unemployment, putting further strain on household finances.

Lower-income households already spend a larger share of their income on essentials such as energy and food, meaning any increase in prices has a more immediate and severe effect compared to higher earners.

"The combined effect will push at least 200,000 additional households into absolute poverty unless government provides targeted support," said Adrian Pabst, a Niesr economist.

These families would join the five million people already living on less than £1,500 monthly after housing costs are deducted.

Niesr defines poverty as earning below 60 per cent of the median income recorded in 2023-24.

Of those newly pushed into hardship, roughly 100,000 households would have just £500 to £1,000 available each month.

Should the Strait of Hormuz remain blocked for an extended period, the economic picture would darken considerably.

Niesr forecasts that a prolonged closure would tip Britain into recession, with inflation surging past five per cent.

Joblessness could climb from February's 4.9 per cent to reach 5.8 per cent at its peak, a level the country has not experienced since 2014.

"The new energy price shock caused by the war in the Middle East highlights old vulnerabilities. People in the bottom half of the income distribution will see their incomes fall due to lower economic activity and higher unemployment," Mr Pabst said.

Bank of England data showed living costs were already outpacing post-tax income growth before hostilities began.

Mr Pabst has proposed a potential remedy: boosting Universal Credit payments by £10 weekly for a six-month period.

This approach mirrors the £20 uplift introduced during the pandemic and would cost taxpayers approximately £2billion.

The think tank's projections cover only the 2026-27 financial year, with economists expecting conditions to deteriorate further.

Mr Pabst and his colleagues anticipate that the war's longer-term economic consequences will continue squeezing household finances over the next two to three years.

"Lower-income households typically spend a larger share of their budget on energy and food, so rising energy costs and food inflation will erode their living standards beyond the effect of the shock on their incomes," he warned.