Iran War Severely Impacts British Economy and Society

London, United Kingdom – Recent headlines in the British press reflect multiple strains caused by the US and Israeli war on Iran: economic hardship, political conflict, and concerns about the country's strategic and military readiness if the conflict drags on.

On Thursday, the Financial Times reported: “Consumer confidence hits two-year low,” while The Guardian reported: “UK braces for price rises from Iran war as economic confidence slumps” and “UK ready to deploy RAF Typhoon jets to keep Strait of Hormuz open after Iran war.” Earlier this month, The Independent reported that Prime Minister Keir Starmer risked angering US President Donald Trump by “refusing to let the US use British bases” for airstrikes on Iranian infrastructure. And on Sunday, citing a minister, The Times said the “economic fallout from the Iran war” would last at least eight months.

Behind the headlines lies genuine public concern about the human toll of the war in Iran and its possible economic and political consequences.

For Iranians living in Britain, there is a heightened level of anxiety.

Omid Habibinia, a man in his 50s born in Tehran who moved to the UK 25 years ago, described the personal impact on him.

“From the first day of the war, connections were cut off. I witness the pain and suffering of close ones, many without news of their families. Besides the near imprisonment of some 90 million people in Iran due to the loss of the internet and millions more losing contact with loved ones, the attacks on the country’s critical infrastructure – along with thousands of civilians killed, wounded, and displaced – cause me deep grief,” he told Al Jazeera.

It is clear the impact will last long after the conflict ends, or at least a long-term ceasefire is agreed. There are concerns about higher mortgage costs, rising food and fuel prices amid the ongoing cost-of-living crisis.

Luke Bartholomew, deputy chief economist at fund manager Aberdeen, said the UK economy is “particularly vulnerable to the Iran shock because it is a large energy importer, inflation expectations are weak, and the labor market has already weakened.”

For many still recovering from the energy inflation shock after Russia’s invasion of Ukraine in 2022, this is a hard-to-manage blow to household finances.

Although the government urges people not to worry, long queues at petrol stations and stories of returning to panic buying reminiscent of the early COVID-19 pandemic have become common.

‘We will stand by working people’: Starmer

Starmer established the Iran crisis committee, which met on Tuesday to convince the public that “you can be sure we will stand by working people through this crisis.”

He suggested that people could change their holiday plans and might already be cutting back on food spending.

“I think we’ll see how long the conflict lasts. I can see that if there is more impact, people might change their habits… where they go on holiday this year, what they buy at the supermarket, that sort of thing,” he said.

Critics argue the government’s strained finances mean it cannot afford the energy subsidies that might be needed. They also complain about the government’s hesitancy to tap the untapped oil reserves in the North Sea. Experts disagree on whether this would make a significant difference.

Before the Iran war began, the UK economy was slowly improving. Inflation and fuel costs were falling, government borrowing was down, and unemployment was decreasing.

The impacts on British people range from relatively minor to potentially frightening.

House prices in London have fallen steeply as sellers are nervous and buyers stay put, though some observers note that prices were already too high.

Flight cancellations due to a lack of jet fuel could cause inconvenience. Rising fuel and food prices, followed by everything else, are a major issue for those already on tight incomes.

Then there’s the real fear of what a prolonged war might bring, such as a severe recession or military involvement.

Thomas Pugh, chief economist at consultancy RSM UK, said: “The Strait of Hormuz has been effectively closed since early March. The International Energy Agency calls it the largest supply disruption in the history of the global oil market. Oil prices have soared, gas prices are up, and inflation fears are back. But the greater risk is ‘demand destruction’.

“Demand destruction occurs when high prices force people and businesses to buy less. We are seeing this in fuel distribution in emerging market economies. It means fewer car sales, fewer home purchases, fewer restaurant meals, less business investment, and ultimately fewer jobs. Because this crisis isn’t just about oil, demand destruction appears across the entire economy.”

The Iran war comes at a time when Britons were already dissatisfied.

A December poll by IPSOS reported: “Three-quarters of Britons anticipate large-scale public unrest in 2026. 59% think there will be protests against how their country is run, the highest in Peru (80%) and South Africa (76%). In the UK, 74% anticipate large-scale unrest. Since 2019, three G7 countries – the UK, Japan (both +11pp [percentage points]), and the US (+10pp) – have seen double-digit increases in the share of those who think there will be large-scale public unrest.”

Bartholomew added: “With inflation rising and wage growth sluggish after a long period of very weak labor activity, real wages could turn negative in the coming months, adding another headwind for the economy. So perhaps it is too early for the full effects of the war to be felt or to appear in the data. But one area where the war’s impact is very clear is on the interest rate path.

“It is very likely that without the war, the Bank of England would have cut rates at its April meeting. Instead, markets are pricing in a series of rate increases this year. For households hoping for mortgage rate cuts this year, the prospect of rates staying put is almost as painful as new increases.”