Rachel Reeves used her spring statement to insist her economic policies are working and things are looking up for household finances after the cost of living crisis.

The chancellor said that by the next general election “people will be over £1,000 a year better off”. But against the backdrop of war in the Middle East, financial experts warned that the new economic forecasts published alongside her statement might have already been overtaken by events.

We look at what it could all mean for you.

‘Over £1,000 a year better off by the next election’

This sexy headline is derived from an unsexy bit of maths – a comparison of the average disposable income in the final year of the Tory government (£25,600) with the projection for the final year of the current parliament (£26,685). The difference is £1,085.

Officially called “real household disposable income”, this is the money people have left to spend – adjusted for inflation – after they have paid their taxes.

The government’s forecaster, the Office for Budget Responsibility (OBR), predicts that disposable income based on this measure will grow by 0.6%-0.9% each year between 2026 and 2030. This is relatively muted progress compared with recent decades.

One reason for the sluggish progress is the decision to freeze income tax thresholds until the 2030-31 tax year. This results in what is called “fiscal drag”: a phenomenon where people are dragged into higher tax bands when they get pay rises.

The OBR also forecast that inflation would be at or near the target level of 2% across the next five years. After soaring above 11% at the height of the cost of living crisis, the drift downwards in the pace of price rises had fuelled expectations of further interest rate cuts.

However, the outbreak of the Iran crisis this week has sent energy prices soaring, raising fears of another cost of living spike.

What about my mortgage?

Reeves said recent interest rate cuts meant someone taking out a two-year fixed mortgage now would typically save more than £1,300 a year on their repayments.

The stat compares interest rates on a two-year fixed mortgage in June 2024 (4.97%) and January 2026 (4.07%), based on a £215,000 loan with a term length of 29 years.

Obviously the independent Bank of England sets rates, not the government, but after a difficult few years hopes had been high that borrowing costs would fall further this year.

The central bank has cut interest rates six times since the general election in July 2024, bringing the base rate down to 3.75%. Last week markets were putting an 80% probability on another cut when the rate setting committee meets on 19 March.

But with the chaos unleashed by war in the Middle East, the path interest rates will follow is less certain and odds of a cut in March have slumped to about 30%.

In recent weeks, mortgage rates have held steady and deals are certainly better than they were. The current average on a two-year fix is 4.83% and 4.95% on a five-year deal. A year ago, those figures were both over 5% at 5.39% and 5.22% respectively.

The OBR said it expected the average interest rate on mortgages to rise from 4.1% this year to an average of 4.5% over the 2027 to 2030 period. This is 0.3 percentage points lower than its November forecast but, remember, these numbers were crunched before the war broke out.

The forecaster also predicted house prices would rise by between 2.4% and 2.9% each year between now and 2030.

And energy bills?

The government has pledged to cut £150 off the average household energy bill this year. Just last week, the energy regulator Ofgem said its price cap would fall 7% from April to the equivalent of £1,641 for a typical annual dual-fuel household, thanks to the removal of green levies from bills.

Analysts had expected energy costs to sit around this level for the rest of the year but all bets are off after the Iran-linked oil and gas price surge.

Analysts at Stifel warned on Monday that any sustained increase in wholesale gas prices could see the price cap jump to nearly £2,500 a year when it next changes in July.

Analysts at Cornwall Insight said prolonged uncertainty around supplies could lead to higher prices going into next winter but there was “no suggestion of immediate system stress”.

Craig Lowrey, its principal consultant, said that the UK’s dependence on global gas markets means movements in international wholesale prices feed directly into domestic bills. “For those customers on the price cap, the April to June price is now set, and therefore there should be no immediate impact on bills,” he said.

“The cap is calculated using an average wholesale price over three months, and we are only at the very start of the July to September assessment period, so the long-term impact will depend on how long gas prices stay elevated and how long this period of volatility remains.”

What about other household costs?

The spring statement doesn’t come in isolation. Next month, a number of bills including water and council tax will rise. For example, monthly water charges in England and Wales will rise by an average of £33 annually for households in April (5.4%).

The war also has the potential to push up prices at the petrol pumps. The RAC’s head of external affairs, Simon Williams, said forecourt prices were already rising owing to oil trading nearer to $70 (£52) a barrel in the last few weeks.

“Petrol rose by a penny a litre in February and is likely to go up by another penny in the next week or so to an average of 134p a litre,” said Williams.

“If oil were to climb to and stay at the $80 a barrel mark, then drivers could expect to pay an average of 136p for petrol. At $90, we’d be looking at over 140p a litre and $100 would take us nearer to 150p, but it’s all too soon to know.”

Is my job secure?

The OBR downgraded its economic growth forecast for this year from 1.4% to 1.1%. It also predicts that the unemployment rate, already almost at a five-year high, will continue rising, to a peak of 5.3% this year – up from a previous estimate of 4.9%.

The forecaster said this had been “driven primarily by entrants into the labour force struggling to find work amid subdued hiring demand”.

Dan Coatsworth, the head of markets at AJ Bell, said the UK economy continued to be “stuck in the mud”. “Although there is hope on the horizon in the form of upgraded economic growth forecasts for 2027 and 2028, that is of little consolation to businesses hoping for a sales boost this year. It’s also worrying for consumers having to contend with a weak jobs market as there is no sign of a big improvement soon.”

If the spike in oil prices is sustained for weeks or months “that could drive up inflation and force the Bank of England to pause any further interest rate cuts in the interim”, he continued.

“The OBR flags conflict in the Middle East and global trade policy as key risks to its economic forecasts, and they are the elephants in the room as far as Reeves is concerned.”