The government’s top cost of living adviser has called on ministers to explore a temporary cap on the profits of energy and petrol companies to prevent them from cashing in excessively on the war in the Middle East.

Richard Walker – a Labour peer, the chair of Iceland supermarkets and the prime minister’s “cost of living champion” – said he had asked the government to examine limiting how much businesses were able to benefit from higher energy prices after Iran’s blockade of the strait of Hormuz, a crucial shipping route for Europe’s oil and gas, and the wider conflict in the region.

“I have asked the government to consider a temporary profit cap … to stop producers and retailers exploiting the crisis to make windfall profits at the expense of consumers,” Walker wrote in a column in the Sunday Times.

“As executive chairman of a retailer, I have no problem with profit. It’s what allows businesses to invest, employ people and pay tax. But I do have a big problem with profiteering, especially when families are under real pressure.”

His comments come after suggestions that the chancellor, Rachel Reeves, had been planning to ease the UK’s existing windfall tax – the energy profits levy – before the US and Israel attacked Iran on 28 February with airstrikes that killed Iran’s supreme leader, Ali Khamenei.

Andrew Bailey, the Bank of England governor, is due to meet Keir Starmer and senior ministers on Monday, as part of an emergency meeting to discuss ways to mitigate cost of living pressures brought on by the war.

There is increasing alarm in Downing Street and the Treasury that a protracted conflict would not only require government intervention to alleviate the impact of soaring energy bills but also derail economic growth and remove fiscal headroom.

The economic fallout from the US-Israeli war on Iran is increasingly compounding the cost of living crisis British households have faced since Russia’s invasion of Ukraine four years ago first sent bills soaring.

Consumers already face a sharp rise in petrol and diesel prices, while mortgage borrowers can expect higher repayments after Bailey warned that Threadneedle Street may need to raise interest rates in response to an inflation shock.

Official figures on Wednesday are expected to show inflation remained at 3% in February. Before the outbreak of the war, the Bank had forecast a fall in the headline rate close to its 2% target this spring, helped by measures to cut energy bills announced in Reeves’s autumn budget. However, it warned last week that it expected inflation to remain above 3% this year because of the war on Iran.

Highlighting the threat to Britain’s economy, KPMG warned that the rate of economic growth could be almost halved this year compared with 2025, from 1.3% to 0.7%, as the energy shock drags down spending.

Households energy bills could increase by about 10%, potentially more, if the conflict dragged on, it said. Higher borrowing costs triggered by the war would also add to pressures on the government finances, making it tougher for ministers to provide emergency financial support.

Yael Selfin, the chief economist at the accountancy firm, said: “The weaker growth outlook coupled with growing cost pressures will likely see firms scale back any investment plans over the coming year. Consumers could also cut back on discretionary spending to offset the squeeze from higher prices.”

The concern within the cabinet is mirrored within the wider economy. On Sunday the TUC called for an emergency taskforce to help protect the UK from the economic fallout of the US-Iranian conflict – in tactics that would echo those used during the Covid-19 pandemic.

The TUC general secretary, Paul Nowak, said: “The lessons from the pandemic are clear. When unions, employers and government came together we were able to move at speed to protect jobs, keep businesses afloat and give families security through an incredibly uncertain time.

“With the UK and global economy now facing huge shocks from the conflict in Iran we need that same approach again.

“We can’t afford to sit back and wait for the damage to be done. We need to get around the table and get ahead of this crisis.”

Chris O’Shea, the chief executive of the British Gas owner, Centrica, said an increase in energy prices may be “inescapable” if the war in the Middle East “stays as it is”, although he predicted that petrol prices would be affected much more than energy bills.

“The world uses about 100m barrels of oil a day. We’ve lost about 20% of that through the strait of Hormuz. The loss of gas through the strait of Hormuz being closed is about three or 4% of global gas,” he told the BBC’s Sunday with Laura Kuenssberg programme.

“So the impact on gas, and therefore on electricity bills, should be lower than the impact on oil. So my gut feel is that you’ll see more of an impact of this in the petrol pumps than you will in bills.”

Asked about support to help people with bills, he said Centrica had held meetings with the government and hoped they would be looking at targeted support. “I do think targeted help is far better than blanket help,” he said.