Pound slide reignites cost-of living fears, complicates Starmer’s pledges

The pound has fallen as the global oil shock raises concerns that rising energy prices and a weaker currency could drive living costs higher again in the UK, putting the government’s recent affordability pledges in peril.

The warning from Nigel Green, CEO of financial advisory giant deVere Group, comes as sterling slid toward $1.33 against the US dollar in early trading while crude oil surged above $120 a barrel, following an extraordinary near-29% intraday spike, the largest move since April 2020, triggered by escalating conflict in the Middle East and severe disruption to global energy flows.

Shipping through the Strait of Hormuz, the narrow corridor responsible for roughly 20% of global oil supply, has been severely curtailed amid attacks on -foessels and threats to energy infrastructure, forcing traders to rapidly reprice supply risks and pushing energy markets sharply higher.

Nigel Green says: “Energy becoming more expensive globally and the weaker pound means Britain pays even more for those imports.”

He continues: “Oil and most commodities are priced in dollars. A softer pound, therefore, magnifies the impact of rising global prices.

“Households feel it at petrol pumps, in energy bills, and through higher prices in supermarkets.”

The development risks undermining efforts by the UK government to ease financial pressure on households.

Recent economic messaging from Downing Street has centred on reducing the cost burden facing families, with ministers highlighting measures designed to cut annual household energy bills by around £150 as part of broader efforts to improve affordability.

The deVere CEO notes: “Government plans to ease household bills rely heavily on a stable or falling energy environment. Oil above $120 changes that calculation quickly.”

Energy markets have surged after US-Israeli strikes on Iran intensified tensions across the Gulf region, raising fears of broader disruption to oil and gas exports.

 “The Gulf region sits at the centre of global energy supply. Escalation involving major producers immediately tightens markets and sends prices higher.”

The economic implications could be significant if elevated prices persist.

Analysts have warned that rising wholesale energy costs could push the UK’s regulated household energy price cap sharply higher later this year. Some estimates suggest the cap could rise by as much as £500 from July if energy prices remain elevated.

Nigel Green explains: “Energy price caps move with wholesale markets. A sustained surge in oil and gas increases the likelihood of higher household energy bills later in the year.”

Higher energy costs could also complicate the outlook for the Bank of England.

“Markets had expected the Bank of England to move toward interest rate cuts this year as inflation eased.

“A renewed surge in energy prices risks delaying that path because higher fuel and transport costs push inflation upward again.”

He adds: “Central bank policymakers are extremely sensitive to energy-driven inflation. Oil above $120 makes it far harder to justify lower borrowing costs in the near term.”

Businesses face mounting challenges as well.

“Companies across logistics, aviation, retail and manufacturing rely heavily on energy. Oil above $120 significantly increases operating costs, squeezing margins and often forcing firms to pass higher costs through to consumers.”

Import-dependent sectors also face higher costs due to the weaker currency.

Nigel Green explains: “Sterling around $1.33 raises the cost of imported goods across the economy. Raw materials, fuel and consumer products all become more expensive.”

The combination of currency weakness and higher energy prices could, therefore, reignite inflationary pressure.

Nigel Green says: “Higher oil prices feed directly into transport, electricity generation and food production. Add a weaker pound and the inflation effect becomes even stronger.”

He concludes: “Sterling’s drop highlights how quickly geopolitical shocks feed into UK domestic economic conditions.

“Higher oil prices, a weaker pound and rising inflation risks create real challenges for households, businesses, investors, the Bank of England, and the PM alike.”