Rachel Reeves' attempt to project economic stability in her spring forecast has been met with chaos and criticism in the House of Commons, as escalating conflict in the Middle East threatens to undermine her claims. The chancellor spoke of restored stability moments after MPs heard from Foreign Secretary Yvette Cooper about plans to evacuate British nationals from the region.
The oil price continued to climb as Reeves addressed MPs, and financial markets have pushed up government borrowing costs, betting that central banks will be unable to cut interest rates much further amid rising inflation. Lower gilt yields had been a key factor in improving public finance forecasts since the budget, but these gains may be eroded if market turmoil persists.
Reeves pointed to lower inflation and public borrowing forecasts from the Office for Budget Responsibility (OBR), as well as modestly increased fiscal headroom. Utility bills are set to fall in April due to government intervention shifting net zero subsidies into general taxation. However, if oil and gas prices remain high, the OBR's forecasts risk being overtaken by events.
Former chancellor Jeremy Hunt warned that Reeves' promises to reduce utility bills may 'ring hollow' if energy costs jump in coming months. A renewed increase in inflation would strike at Labour's claim to have tackled the cost of living crisis. The OBR also forecasts a significant rise in unemployment, back to pandemic-era peaks, concentrated among first-time workers.
Reeves could have delivered her message a week ago, perhaps marking a calmer period. But with bombs continuing to fall in the Middle East, her promise of stability may quickly prove misplaced.
