Mortgages, jobs and energy bills - how the Iran war will affect your money

Some committee members noted that higher inflation could impact wage negotiations in 2027, reflecting the longer-term influence of energy and food price pressures on pay settlements.

The Bank says inflation will rise in every scenario this year as energy prices push up the cost of living and food prices. It projects food price inflation could reach 4.6% in September and could climb higher later in the year.

Energy bills are set to rise as Ofgem's price cap updates. The Bank notes a typical annual bill of £1,641 could rise to close to £1,900 in July and remain around that level for the rest of the year. About 40% of households are on fixed tariffs, which will shield them until contracts end, while those on prepayment meters may face larger rises if prices stay high into winter.

The Bank notes that more than seven million homeowners hold fixed-rate mortgages (about 87% of all mortgages), meaning their payments stay fixed until their deal ends. Over the next three years, average monthly payments for those moving onto a new deal are expected to rise by around £80, with variation depending on energy prices and the specific deal chosen. About 53% of mortgage holders are expected to see payments rise, while around 25% of those who fixed at higher rates should see payments fall.

The Bank of England kept the Bank Rate unchanged at its latest policy meeting but signalled that rises could come later this year as the Iran war adds to economic uncertainty. The rate-setting committee described a range of scenarios: in the central scenario, energy prices fall slowly and one or two rate rises are possible; in the most adverse scenario, oil stays above $120 a barrel and inflation hits over 6% early next year, potentially requiring as many as six rate rises to lift the base rate to about 5.5%.

The Bank notes that, across the next three years, borrowing opportunities exist but come with higher costs; households renewing or seeking new mortgage deals can expect an average rise in monthly payments of about £80, with outcomes depending on energy prices and contract terms.

The Bank cautions that unemployment could rise further as households save more and spend less, with weaker demand making firms more likely to reduce hiring.