Chancellor Rachel Reeves is facing mounting pressure as the UK's interest bill on government borrowing is set to surge by £25bn, sparked by the US-Israeli attack on Iran. The conflict has reversed hard-won improvements in bond market sentiment, driving up yields and threatening to erase much of the fiscal headroom Reeves built up through tax rises last autumn.
Reeves has been fiercely defending her record, arguing that the UK economy was turning a corner before the war. Official data showed 0.5% growth in February and falling unemployment, while public borrowing dropped by £20bn in the year to March. “We did not start this war and we did not join this war,” she told MPs, insisting the conflict is not of Britain's making.
However, critics point to self-inflicted wounds, including a botched winter fuel allowance cut and tax rise speculation. Shadow chancellor Mel Stride said: “Rachel Reeves can blame the world all she wants, but it’s her choices that have weakened our economy at the worst possible moment.” The Bank of England is now expected to raise interest rates, possibly as soon as next week, as oil prices hover around $100 a barrel.
The Resolution Foundation's Ruth Curtice noted that the UK was “just kind of coming out of the last one” and that a price shock is particularly ill-timed. “It does just feel like it really is the wrong moment for any shock,” she said. Treasury sources insist Reeves must win the argument that the economy had momentum before the war, but with borrowing costs soaring, her fiscal plans are under severe strain.
