British households are facing renewed pressure on living standards as fuel costs surge, the Fund has warned
The UK is facing one of the largest economic shocks of any country from the Middle East conflict, the International Monetary Fund (IMF) has warned, saying it is “especially exposed” to surging energy prices due to its heavy reliance on gas-fired power.
Energy importers across Europe are taking the hardest hit after prices surged in the wake of US- Israeli strikes on Iran in late February and subsequent retaliatory attacks across the region. The crisis has effectively shut the Strait of Hormuz – a key shipping route that carries about a fifth of global oil supply – choking off flows and driving up fuel and input costs.
In a blogpost by senior IMF officials including chief economist Pierre-Olivier Gourinchas earlier this week, the Fund said heavily indebted governments would have little room to cushion the blow, leaving households and businesses more exposed. It added the Middle East war’s impact would be “both global and highly uneven,” with some countries, including the UK, facing a renewed squeeze on living standards.
The UK and Italy are among the most exposed, with rising energy bills set to drive up living costs, the IMF said, while France and Spain are relatively shielded due to greater reliance on nuclear and renewable energy.
UK Prime Minister Keir Starmer on Monday urged the public to “act as normal,” insisting that fuel supplies remain secure.
Economists warn that the British economy is now in a far weaker position than four years ago, when the EU and UK began to phase out affordable Russian gas and oil over the Ukraine conflict.
Former Bank of England deputy governor Howard Davies said this week the UK could be heading towards an energy crisis comparable to the turmoil of the 1970s, when oil prices quadrupled after the 1973 Arab-Israeli war as Arab producers imposed an embargo on Western nations. He warned that Middle East supply could remain constrained, keeping prices elevated – if not as high as $150 a barrel, then well above the roughly $60 seen before the current crisis.
UK natural gas prices have more than doubled since December, while Brent crude – near $60 before the conflict – briefly topped $116 earlier this week before easing to about $100 a barrel on Wednesday.
