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

Key takeaways: 

• Recent peace talks between the US and Iran usher in hope of the conflict in the Middle East coming to an end.
• The UK economy has still to feel the full impact of the conflict, even if peace is secured. Rising oil prices could increase petrol and transport costs further, with average petrol prices now standing at 157.53p a litre at the pump.
• Rising oil and gas prices could increase energy bills from the summer and also push inflation higher, 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.
• Although some major lenders have cut rates recently, mortgage rates could remain higher for longer in 2026 if inflation and consequently the base rate, stay elevated for longer.
• However, the rate you could get depends on your individual circumstances. From our panel of over 100 lenders, the lowest mortgage rate is a 2 year tracker rate at 3.96%, while the lowest 2-year fixed rate is sitting around 4.34% for those with an 60% LTV. See what rate you could get here

What's happening with the Middle East conflict?

Despite the recent escalations in the conflict in the Middle East, current peace talks are ushering in hopes that the ceasefire will develop into sustained peace. Donald Trump has recently claimed that the "deal’s all signed".

The memorandum of understanding (MOU) is set to be formally signed in Geneva on Friday, but there are still loose ends which could unravel the whole thing. Before the meeting with Egyptian president Abdel Fatah el-Sisi at the G7 summit, Trump exclaimed that the deal is not final, and that if Iran doesn't "behave", the US could reignite its offensives.

If this escalation continues, it's likely we'll see higher inflation here in the UK over the coming months, as the conflict continues to cause energy costs to rise.

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 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 prices sharply higher.

When energy 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. 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 to 157.53p a litre since the conflict started. That's an increase of £13.81 per tank for petrol since the conflict began.
• 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 18th June 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.