Rachel Reeves today warned the Iran crisis is ‘likely to put upward pressure on inflation’ in the UK amid fears that drivers could face record fuel prices.
The Chancellor told the House of Commons she stands ready ‘to support a co-ordinated release’ of international oil reserves to ease the economic shock of the Middle East conflict.
But she also called for ‘de-escalation’ by both sides as concerns grow of global economic carnage following the US and Israeli strikes on Iran and Tehran’s retaliation.
Britons are being urged to drive less amid expectations the Middle East fighting will send forecourt prices soaring, with experts suggesting petrol could hit £2 per litre.
Saudi Arabia – the biggest oil supplier in the region – is said to be curbing output at two major fields in the latest sign of fallout from the war.
The price of a barrel of oil has rocketed over $100 for the first time in years, with supplies threatened by attacks on infrastructure of major producers in the region.
Iran has also managed to effectively shut the Strait of Hormuz, through which around a fifth of the world’s oil travels.
The AA and RAC have advised drivers to cut non-essential journeys and avoid harsh acceleration and braking to conserve fuel.
The Chancellor followed Prime Minister Sir Keir Starmer in trying to calm markets and consumers.
But she also told MPs on Monday: ‘The movements that we have already seen are likely to put upward pressure on inflation in the coming months.’
Any spike in inflation would also lessen the chance of interest rate cuts by the Bank of England, delivering a blow to homeowners with mortgages.
Ms Reeves said she is ‘taking action to ensure that people pay the lowest possible price at the pump’, and also promised MPs would get a meeting focused on heating oil prices.
In a statement to the Commons, the Chancellor said: ‘I recognise that households who use heating oil face unique challenges, and so I have asked the Financial Secretary to the Treasury to lead discussions with officials and with rural and Northern Irish MPs to explore further action that we can take, and those meetings will happen on Wednesday.’
Ms Reeves pointed to cuts in fuel duty, adding: ‘I am also taking action to ensure that people pay the lowest possible price at the pump.’
‘The new cheap fuel finder that I confirmed at the Budget is currently being delivered, helping consumers find the cheapest price for their fuel.
‘Almost 90 per cent of petrol retailers have already registered for this and last week, I instructed my officials to accelerate the integration of the cheaper fuel finder with map applications.
‘This week, I am meeting with petrol forecourt operators, and I will not hesitate to call out retailers who fail to provide data to the fuel finder.
‘I am clear that the best way to keep prices at the pump low is rapid de-escalation, and I will continue to monitor prices as the situation develops.’
But Tory shadow chancellor Sir Mel Stride claimed that Ms Reeves’ decisions since taking charge of the Treasury have left the UK ‘more vulnerable’ to the economic impacts of the conflict in the Middle East.
‘Inflation was bang on target when we left office, but thanks to (the Chancellor’s) choices, it rose back up to almost 4 per cent last year, the highest in the G7 – and inflation remains elevated,’ he said.
‘That is far from ideal, given the threat of a significant further spike in energy prices.
‘And of course, extraordinarily, the Chancellor has just now reconfirmed that the Government will press ahead with a rise in fuel duty later this year.
‘And borrowing is running higher than was forecast when the Government took office. We are spending well over £100 billion a year on debt interest alone. That leaves us far more vulnerable to rising borrowing costs.
‘And the Government, of course, is continuing to impose ruinously high taxes on our oil and gas sector and choosing to rely on imports, instead of maximising our own domestic energy supply.
‘That is proving to be an incredibly short-sighted approach, but as (the Chancellor) has just told us, there will be no change in direction. That is the wrong choice.’
Conservative former chancellor Jeremy Hunt said it is ‘too early to know’ whether Ms Reeves will need to fund an energy bills rescue package for Britons, as he drew comparisons with his time in the Treasury during the Russian invasion of Ukraine.
Mr Hunt said: ‘When I was doing her job the Treasury rule of thumb was that a 20 per cent increase in energy prices meant 1 per cent more on inflation and 0.5 per cent less on growth.
‘The truth is it is much too early to know whether she is going to have to find £78 billion to help households with energy bill as I had to in 2022.’
Ms Reeves replied: ‘I think this point about it being too early to tell the impact is really important.
‘Of course we will take the necessary actions to protect consumers and businesses, but the most important thing we can do at the moment is to deescalate the conflict and work with Lloyds of London and countries around the world to get those vessels flowing through the Strait of Hormuz.’
Commenting on the Chancellor’s statement , TUC General Secretary Paul Nowak said: ‘Working people are now facing a Donald Trump-made cost of living crisis.
‘It’s right that the Chancellor calls for deescalation and recognises the real threat to households and industry up and down the country.
‘While household energy bills are stable for now, it’s clear that Trump’s war threatens living standards with other costs like petrol and mortgage rates already rising.
‘The Government must stand ready to pull out all the stops and shield households and firms from this global shock.’
The PM is desperately trying to calm fears of another 2022-style cost of living squeeze, hinting at another bailout despite the fragile state of the Government’s finances.
On a visit to a community centre in London on Monday morning, Sir Keir insisted the economy is more ‘resilient’ than when Russia’s full-scale invasion of Ukraine caused havoc four years ago.
But he conceded that the longer the war goes on ‘the more likely the impact on our economy’, urging ‘de-escalation’.
Sir Keir is also scrambling to limit damage to the Special Relationship from his refusal to back Mr Trump’s decision to launch the war on Iran.
The US President has dismissed the soaring oil and gas prices saying they are a ‘small price to pay’ for taming Tehran.
The price of a barrel of Brent crude was nearly 30 per cent higher in Asian markets at some points overnight, as traders concluded that the crisis will drag on.
It took just a minute for the price to rise by 10 percent, and 15 minutes for another 10 percent, seeing it surge beyond the $100 mark for the first time since the early days of Russia’s invasion of Ukraine in 2022.
The Office for Budget Responsibility watchdog forecast just last week that prices would average $63 a barrel over this year.
But a defiant Mr Trump wrote on his Truth Social site: ‘Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay U.S.A., and World, Safety and Peace.
‘ONLY FOOLS WOULD THINK DIFFERENTLY!’
On his visit on Monday morning, Sir Keir struck a different tone, saying he was looking at ways to ‘reduce the likely impact’.
‘The job of Government is obviously to get ahead, to look around the corner, to work with others, and the Chancellor speaks to the Governor of the Bank of England on a daily basis, with looking cross-departmental within Government, assessing the risks, monitoring and talking to our international partners as well about what more we can do together to reduce the likely impact on people here and businesses here, of course,’ the PM said.
‘But it is important to acknowledge that that work is needed, because people will sense, you will sense I think, that the longer this goes on, the more likely the potential for an impact on our economy, impact into the lives and households of everybody and every business.
‘And our job is to get ahead of that, to look around the corner, assess the risk, monitor the risks, and work with others in relation to that.’
