UK households are heading into a period of sharply rising energy costs that economists are warning could push inflation above 4% by the summer, with the Ofgem price cap providing a temporary cushion from April 1 that is expected to be entirely reversed — and then some — by July.
The new price cap from April 1 was set before the Iran war started, meaning it reflects pre-conflict wholesale gas prices and will actually reduce bills slightly in the short term. But British Gas has already confirmed that its forecast for the July price cap shows an increase of approximately 9% — the direct consequence of the wholesale gas price spike driven by the Strait of Hormuz disruption.
Energy consultancy Cornwall Insight projected this week that Business energy bills — already up 10 to 30% for electricity and 25 to 80% for gas since the war began — will continue climbing if the conflict drags into the summer months.
UK inflation stood at 3% in February, the last reading taken before any Iran war effects registered in the data. The Bank of England, which had been expected to cut rates from 3.75% at its March meeting, instead held firm and signalled that the rate path depends entirely on how persistent the energy shock proves to be.
Financial markets are now pricing in up to three rate hikes for 2026 — the complete reversal of a cutting cycle that was supposed to be already underway. Mortgage rates have already moved: two-year fixed rates jumped from 4.83% to 5.32% in March, a pace of increase not seen since 2022.
Chancellor Rachel Reeves has ruled out a blanket household energy support package, citing fiscal rules she has described as “ironclad.” The OECD, in its updated interim outlook, predicted UK inflation at 4% this year and growth of just 0.5% — the most severe downward revision it made to any G7 economy.
The Institute for Grocery Research warned food inflation could reach 8% by summer, with fertiliser and shipping costs both rising. Morrisons CEO Rami Baitiéh acknowledged the pressure on his customers: “We know it’s tough for customers right now and we’re doing everything we can to offer them better value and give them more reasons to shop at Morrisons.”
For lower-income households, the combination of stagnant wages, higher energy costs, and no government safety net beyond targeted benefits represents a cost-of-living squeeze comparable in structure if not yet in magnitude to 2022.