- The US and Iran last night agreed a deal to end the war, bringing oil prices down to $83 a barrel
- In April, the Bank of England forecast that if oil price rises were short-lived, inflation might rise to just over 3.5% by the end of 2026, before falling back
- How a deal for lasting peace could affect prices, mortgage rates and savings
Sarah Coles, head of personal finance at AJ Bell, comments:
“Nothing can be guaranteed in this peace process, and with an agreement over nuclear material far from certain, there’s the chance that something could break in the fragile deal between the US and Iran. A breakdown would send prices sky high again, but if peace can endure, it could bring relief for the squeeze on household finances.
Inflationary pressures could ease
“The oil price has been over $90 a barrel from early March, and briefly peaked at over $120 in late April. This fed through quickly into the price at the petrol pumps, so motorists faced the brunt of price rises. If the oil price remains lower, it will make filling up the car less painful in the coming weeks and months.
“For prices more generally, it’s likely we’ll see inflationary pressures ease. Unfortunately, there’s still a strong chance that inflation will get worse before it gets better. Already the higher price of everything from fertiliser to the energy used in production will be affecting the cost of food, which will feed through into higher prices on the shelves for a period.
“The Bank of England forecasts that price rises will build into the autumn. However, the falling oil price means this could be a relatively short, sharp period of price rises rather than anything more significant as had been feared.
Rate expectations drop
“In the middle of last week, markets were pricing in two interest rate hikes by early 2027. The probabilities have now shifted to just one rate hike by December and then potentially no change for at least the first half of 2027. This is good news for mortgage borrowers, because lower rate expectations will mean fixed rate mortgages come down. Some of the more competitive deals fell last week, and we should see more widespread good news on deals across the market this week.
“If you’re in the market for a remortgage, or you’re planning a move, it’s worth taking advantage of deals as they emerge. There’s real hope that peace will endure, but there are no guarantees, so it’s worth securing a better rate while they last.
“Lower rate expectations will naturally depress savings rates. Competition in the savings market means there are a handful of deals offering as much as 5%. However, those with higher rates tend to have limited access or short-term bonuses built in, so you’ll need to be prepared to live with less access or to switch again soon.
“Competition has also pushed fixed rate savings deals slightly higher. Aside from a handful of easy access deals with strings attached, you’re now getting better rewarded for tying your money up. The change in rate expectations means these savings deals may not be around for long though, so if you’re considering a fix, it’s worth snapping up a deal sooner rather than later.
Energy bills
“For energy bills, the price cap has prevented big hikes based on short-term market movements. However, lasting peace in the Middle East could see the price cap ease in October when the cold weather starts to bite, protecting more families from difficult decisions about how warm they can afford to be. People will be hoping cool heads prevail during the rest of the negotiations to save them from a bitterly cold winter.”
