The conflict between Iran and the US, ongoing since early 2026, has impacted global energy markets. In early September 2026, Brent crude prices reached between $110 and $120 per barrel, currently hovering around $100. This volatility affects the UK, which relies heavily on energy imports.
Rising oil prices led to a 6p per litre increase in petrol and diesel costs in early September 2026. UK consumer price inflation reached 2.9% in July 2026, with forecasts predicting a peak between 3.2% and 4.5% depending on the conflict's progression.
UK 10-year gilt yields rose to 5.37% in September 2026, the highest level since 2007. Five-year fixed mortgage rates reached approximately 5.78% earlier this year. The Bank of England's base rate is currently 3.75%, with market expectations of a rise to 4% or 4.25% by year-end.
The IMF has downgraded the UK's growth outlook due to the energy shock. Increased government spending on potential energy subsidies could further strain public finances, especially given the current high yields on government debt.
