Iran peace deal in progress: what does it mean for your finances?

After three and a half months of war between the US and Iran, there is progress on a peace deal that would include an extended ceasefire and reopening of the Strait of Hormuz.

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. Global markets have reacted positively to the news for now, but investors will need to wait and see if it holds. A breakdown would hurt investments and send prices sky high again, but if peace can endure, it could bring relief not only for the market, but for the squeeze on household finances.

What does it mean for the market?

The most obvious way the US-Iran war has impacted the markets is through oil prices. The oil price has been over $90 a barrel from early March and briefly peaked at over $120 in late April. In the three days following the announcement of a deal, the Brent Crude price fell to around $78 per barrel, though still notably above the $70 price pre-conflict.

While oil prices fell, markets including the US and Europe reacted positively to the news. The FTSE did not fare as well, due to its large exposures to oil companies BP and Shell. However, other sectors of the FTSE 100 saw improvement, such as miners, aviation and housebuilders, which could provide more sustained growth.

Travel-related stocks like airlines could see a big boost if the deal sticks, as costs for fuel decrease and supply is renewed. Air fares had increased by nearly 25% by mid-April, according to research by Teneo, meaning many customers could have been priced out of travel.

It is possible that an end of the war could also renew US sentiment for some investors. The S&P 500 went up 1.65% on the day following Trump’s announcement of a deal. However, with US politics remaining unpredictable, there’s plenty of chance another event will occur to shift US sentiment.

Spending rises slow

If the oil price remains lower, it will make filling up the car less painful in the coming weeks and months, where prices tend to feed through quickly. Airfares will likely take a bit longer to cool, as companies recoup their losses and finish the remaining contracts on more expensive fuel.

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. Food inflation is expected to peak towards the end of 2026.

For energy bills, the price cap has prevented big hikes based on short-term market movements – with only heating oil undergoing painful spikes in recent months. 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.

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.

What rate expectations mean for gilts

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. The news dropped the 10-year gilt yield to a two-month low, at 4.8%. This is still significantly above the 4.2% yields at the beginning of the conflict but does represent a meaningful drop. Lower yields mean a hike in bond prices, which will be positive for those invested in gilts or UK government bond funds.

While bond markets are sensitive to the war in Iran, they are also waiting on news from the home market. A change in prime minister could mean a second big move in gilt yields, with the chances of this becoming clearer following Andy Burnham’s by-election on Friday.

... And mortgages

The rate expectation shift 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.