British families face a fresh cost of living squeeze after the price of oil topped $100 for the first time since July.

In a blow to millions of households struggling to make ends meet, Brent crude rose as high as $101.58 a barrel as escalating hostilities in the Middle East fuelled fears over global supplies.

At the same time, UK natural gas prices hit the highest level since December 2022.

The rising prices looks set to hit motorists at the fuel pumps as well as feed through to higher food and energy bills.

And the threat of higher inflation could force the Bank of England to raise interest rates in the coming months – pushing up the cost of mortgages.

Government borrowing costs rose again yesterday as the prospect of higher inflation and interest rates – as well as increased spending and borrowing under Andy Burnham – rattled the bond markets.

The yield on ten-year gilts – a key measure of how much it costs the UK to borrow – raced towards 5.27 per cent to leave it close to last week's 19-year high of nearly 5.3 per cent.

It came a day after the UK paid a record 5.82 per cent interest on the sale of £4.25billion of 30-year bonds – the highest yield since the Debt Management Office was set up in 1998 to raise funds from investors.

The squeeze on family finances is a major blow to Mr Burnham's hopes to tackle the spiralling costs facing households.

And the spike in borrowing costs is a headache for Chancellor John Healey ahead of the Budget next month as he struggles to calm jittery bond markets.

UK bond yields are the highest in the G7 and it is feared any misstep in the form of extra spending and more debt could spark a fierce backlash on the markets – sending borrowing costs ever higher.

'The UK's poor fiscal position argues in favour of a cautious approach,' said Andrew Goodwin, chief UK economist at Oxford Economics.

'The credibility of the current plan to reduce borrowing is relatively weak.'

Inflation is running well above the 2 per cent target at 2.9 per cent with economists warning it could hit 4 per cent next year.

Thomas Pugh, chief economist at consulting firm RSM UK, said: 'Inflation is now on track to peak at almost 4 per cent next year. For businesses this means higher input costs at a time when the economy is likely to be weakening, putting pressure on margins.

'For households it means private sector pay growth is likely to turn negative in the second half of the year, creating even more pressure on the cost of living.

'And last, but not least, for Chancellor Healey, it will mean balancing an even bigger hit to his fiscal headroom against demands to do more on the cost of living.'

The latest rise in oil prices followed US attacks on Iranian tankers and strikes on Saudi Arabia by Iran-backed Houthis in Yemen.

It came just a day after Bank of England governor Andrew Bailey warned the Iran war and extreme weather threaten to ignite another burst of inflation.

He also said that mortgage costs in the UK have already risen faster than in any other country in the G7 'with the possible exception of Japan' – even though the Bank has not raised official rates.

This is because the surge in bond yields has fed through the real economy – pushing up the cost of borrowing for households and businesses alike.

Oil prices have risen more than 30 per cent since the US-Iran war started more than six months ago but the benchmark is well below the high above $126 a barrel reached in late April 2026.

The conflict in the Middle East has disrupted oil flows through the Strait of Hormuz, which previously funnelled around 20 per cent of global supplies but now only hands a fraction of its normal traffic.

Dan Coatsworth, head of markets at AJ Bell, said the rising oil price and subsequent inflation shock 'has major implications for personal finances, corporate profits and financial markets'.

The latest data from the RAC showed the average price of petrol has increased by 5p a litre in the last week to reach 167.17p, and diesel has risen by the same amount to 188.63p.

The last time unleaded petrol prices were that high was four years ago, according to the motoring group.

Furthermore, experts warned that the latest surge in wholesale prices could feed through into consumer energy bills in the winter.

Ofgem's energy price cap will rise by 4 per cent in October, and analysts are predicting a bigger hike to the price cap in the new year.

Oxford Economics warned it could rise by another 13 per cent in January – hitting households in the depths of winter.