Household budgets are being pushed towards breaking point as the economic fallout from rising global tensions threatens to feed directly into everyday living costs, with Britain’s lowest-income families expected to bear the heaviest burden.
Economists have warned that the financial shock stemming from the Iran conflict risks driving up energy bills, petrol prices and food costs, deepening the pressure on households already struggling with the cost of living.
A new assessment by the National Institute of Economic and Social Research (Niesr) suggests as many as 200,000 additional households could fall below the poverty line as inflationary pressures build across the economy.
Those on the lowest incomes are expected to be hit hardest, given they already spend a far greater share of their earnings on essentials such as food and energy. Inflation stood at 3.3 per cent in March and is forecast to rise above 4 per cent even if geopolitical tensions ease in the near term.
At the same time, economists warn that a broader economic slowdown could weaken wage growth and push unemployment higher, further eroding household finances.
Adrian Pabst, an economist at Niesr, said: “The combined effect will push at least 200,000 additional households into absolute poverty unless government provides targeted support.”
The new group of households falling into hardship would join around five million people already living on less than £1,500 a month after housing costs are taken into account. Of those newly affected, around 100,000 would be left with just £500-£1,000 a month to cover all remaining expenses.
Niesr defines poverty as income below 60 per cent of median household earnings recorded in 2023–24.
The outlook could deteriorate further still if disruption to global shipping routes persists. A prolonged closure of the Strait of Hormuz, economists warn, could tip Britain into recession, pushing inflation above 5 per cent and driving unemployment up to 5.8 per cent — a level not seen since 2014.
Mr Pabst said: “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.”
Even before the latest geopolitical escalation, Bank of England data suggested that living costs were already rising faster than post-tax incomes.
Niesr has floated possible policy responses, including a temporary £10-a-week increase in Universal Credit for six months — a measure reminiscent of pandemic-era support that would cost an estimated £2 billion.
However, economists cautioned that the projections cover only the 2026–27 financial year, with longer-term pressures from global instability likely to continue weighing on household finances for years to come.
Lower-income families, they warn, will remain disproportionately exposed to further rises in energy and food prices, with any additional shocks likely to deepen existing inequalities in living standards.
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