How the conflict in the Middle East could impact your wallet and mortgage

Key takeaways: 

• Rising oil prices linked to the conflict in the Middle East could increase petrol and transport costs. Average petrol prices have increased by 4.95p to 137.78p a litre at the pump. 
• The rise in oil and gas prices could increase energy bills from the summer and also push inflation higher than previously expected, having a knock-on effect on the cost of everyday essentials as businesses pass on higher costs to customers.
• Higher inflation makes Bank of England interest rate cuts less likely in the short term, as the central Bank will remain cautious to see how the conflict pans out.
• Mortgage rates could remain higher for longer in 2026 if energy prices stay elevated. Swap rates have already risen, causing many high street lenders to adjust mortgage pricing. The average two-year fixed rate deal has risen to 5.21% from 4.84% on Friday 6th March, and the average five-year fix is now 5.26%, up from 4.96%. See what rate you could get here
• Much depends on how long the conflict continues and how global markets react.

How does the conflict in the Middle East affect the UK economy?

The key economic risk to the UK from the conflict in the Middle East is due to any disruption to the global energy supply. A major focus is the Strait of Hormuz, a narrow shipping route through which around 20% of the world’s oil supply normally passes. Any threat to this route can send energy markets sharply higher.

When oil prices rise, it can affect the economy in several ways:

• Fuel and transport costs increase
• Energy bills rise for households and businesses
• Companies pass higher costs on to consumers
• Inflation increases across the economy

Higher inflation often forces central banks like the Bank of England to keep interest rates higher for longer, and that has a direct impact on mortgage rates.

Will the conflict in the Middle East affect mortgage rates?

The short answer: yes, the conflict in the Middle East could affect mortgage rates, primarily through its impact on oil prices and inflation. If oil prices rise significantly, inflation could increase again in the UK. When inflation rises, the Bank of England is less likely to cut its base rate of interest, and may even need to keep the base rate higher for longer.

Mortgage lenders price their fixed deals based largely on financial market expectations of future interest rates, which means rates can change quickly when global events affect economic forecasts.

The shift in expectations off the back of the conflict in the Middle East is already starting to affect mortgage pricing - we’ve seen most familiar high-street lenders increase the rates on their fixed-rate deals over the last week. This is off the back of expectations that the conflict will push oil and gas prices higher, impacting inflation down the line, as well as swap rates jumping up over the last week. Compare today’s best mortgage deals here

How will the conflict in the Middle East affect your finances?

The biggest immediate impact comes through energy costs. The Middle East is central to global oil and gas supply, and disruptions linked to the conflict have already pushed energy prices higher.

When oil and gas prices rise, the effects ripple through the economy. Fuel becomes more expensive, businesses face higher operating costs, and those costs are often passed on to consumers. For households, this could show up in several ways:

• Higher petrol and transport costs: Rising oil prices typically push up petrol and diesel prices at the pump - we’ve already seen average petrol prices increase by 4.95p to 137.78p a litre since the conflict started. This means the cost of filling up a 55L family car has increased by £4.72 in just over a week.
• If global crude prices stay elevated because of the conflict, drivers could see fuel costs climb again after a period of relative stability.
• Increased energy bills: Wholesale gas prices surged because of the conflict, which could feed through to higher household energy bills when the next price cap is set in the summer. Some forecasts suggest average annual bills could rise significantly if energy markets remain volatile.
• Pressure on the cost of living: Higher energy costs also raise the price of transporting goods and manufacturing products, which can increase the cost of everyday essentials such as food and household items.
• Slower growth in living standards: Some economists warn that rising energy prices could wipe out expected improvements in UK living standards this year, particularly for lower-income households that spend a larger share of their income on energy and essentials. 
• Continued higher savings rates. With the base rate cuts expected to be delayed or even reversed, savers are likely to be able to benefit from higher savings rates for longer.

Will the Bank of England raise rates because of the conflict in the Middle East?

Despite the uncertainty, a Bank of England base rate increase in the immediate future is unlikely. The Monetary Policy Committee (MPC) recently voted narrowly to keep rates unchanged, and policymakers tend to move cautiously when economic conditions are uncertain. Before the conflict in the Middle East, the market was widely expecting to see a base rate cut when the MPC next meets on the 19th March 2026. However, expectations for rate cuts have shifted significantly:

Could interest rates still fall later this year?

It’s still possible, but much now depends on how long the conflict in the Middle East lasts. If oil prices stabilise and inflation forecasts improve, financial markets could again expect interest rate cuts. However, if energy prices remain high, interest rates may stay elevated for longer, which is good news for savings rates but not good news for mortgage rates.

Savings rates are closely linked to expectations about the Bank of England base rate. When markets believe the base rate will fall, savings rates usually start dropping too. But when inflation is expected to rise, as it may now, banks often keep savings rates higher for longer. With the tax year end fast approaching, now is as good a time as ever to ensure your money is in a savings account earning a competitive interest rate. 

While mortgage rates may stay higher for longer, markets can change quickly. If inflation falls or oil prices stabilise, mortgage pricing could improve again. Borrowers should keep an eye on market trends and review their options if they’re approaching the end of a fixed-rate deal.