Concerned people

Category: government and politics

The global economy is facing great uncertainty after tensions in the Middle East have rapidly escalated. How could the UK housing and mortgage markets be affected?

International crisis timeline

On 12nd June 2025, Israel launched a series of precise yet devastating missile and drone attacks on Iran’s military leadership and nuclear facilities. This military operation – named ‘Rising Lion’ – had been years in the making, with key intelligence on Iran’s activities gathered by Mossad (Israel’s covert ops agency) spies operating across the region.

Israel’s Prime Minister Benjamin Netanyahu has stated that Iran’s alleged development of nuclear weapons could pose an “existential threat” to Israel based on their past threats and state-sponsored terrorism, so their aim was to cripple these facilities before any bombs could be completed.

Blindsided by the attacks, Iran launched retaliatory missile strikes against Israel. For the past week, the question of US intervention in yet another Middle East conflict has been extremely relevant. 

Donald Trump offered words of support for Netanyahu’s actions and criticised the Iranian regime on social media, prompting scepticism and backlash – including within the Republican Party.

Trump’s “America First” policy and vows to keep the US out of any more foreign conflicts led few to expect him to match bark with bite. However, on 22nd June, the US military conducted additional strikes against Iranian nuclear sites. 

Trump called this operation a “spectacular military success” in a public statement, and it led to a ceasefire being called the next day. 

However, tensions remain and attacks appear to be continuing, leaving the future uncertain.

Impact on global economy

The question of how much further this conflict could possibly escalate has caused much grief for economists. Wars between global superpowers can bring unpredictable economic shocks, and this one threatens to cause inflation increases in many countries.

Due to many nations’ heavy reliance on the Middle East for fuel imports, there are fears of an energy crisis and soaring oil prices. However, there is currently no evidence of price increases as oil facilities in the Middle East have been largely unaffected.

Nonetheless, some are anticipating further rises to UK inflation, both in response to this crisis, and following general trends in the market. 

The Bank of England (BoE) leadership, always cautious about managing inflation, may have to adjust their Base Rate strategy. More decisions to hold the Base Rate may come throughout the year. 

Jens Larsen, a former BoE official, spoke about how the MPC’s (Monetary Policy Committee) decisions are “very much a work in progress”, reactive to news in the geopolitical environment as it comes.

Lenders manage their mortgage rates outside Base Rate decisions, often several weeks in advance of the actual decision being announced. They monitor Swap Rates (forward projections of the money markets) and listen to economists’ predictions on the MPC’s movements, which are usually very reliable.

Speaking on behalf of the consultancy firm Pantheon Macroeconomics, Robert Wood said:

We are comfortable assuming only one more rate cut this year, even if right now August appears to be a better bet than our forecast for November.

Lessons from the past

Robert McLister from the Financial Post compared the current crisis to the impact past conflicts had on inflation and mortgage rates. 

The Gulf War and Iraq War both saw “inflation run hot for a while”, but ultimately caused little movement in mortgage rates.

This analysis concluded by saying that oil prices, inflation and mortgage rates may only suffer if the conflict drags out for many months. Despite recent news of Trump declaring the “12 Day War” resolved, violations of the ceasefire have already been reported.

The Base Rate was recently held at 4.25%, but with so much uncertainty around the world, now is the time to secure a great deal while things remain stable.