Chancellor Rachel Reeves is confronting a critical juncture for the UK economy as the fallout from US-Israeli attacks on Iran threatens to undo recent progress. Treasury sources insist the economy was turning a corner before the conflict, with official data showing 0.5% growth in February and falling unemployment. However, rising oil prices near $100 a barrel have reversed improvements in bond yields and may force the Bank of England to raise interest rates.
Reeves has adopted an aggressive political stance, blaming the war and distancing the UK from US actions. Allies say her frustration stems from 18 months of turmoil, including self-inflicted wounds like the winter fuel allowance cut and tax hike speculation, compounded by external shocks from Trump's tariffs and now Middle East conflict. Public borrowing fell by £20bn in the year to March, but much of the £24bn fiscal headroom built through tax rises may be wiped out.
Shadow chancellor Mel Stride counters that Reeves's own choices weakened the economy, while thinktank Resolution Foundation notes the recovery was fragile. The Bank of England, previously expected to cut rates, may now raise them as soon as next week. Reeves's team argue they must win the narrative that the economy was improving before the war, but the timing of the shock could not be worse for a chancellor hoping for calmer waters in 2026.
