Three months after Donald Trump launched his military campaign against Iran, the economic fallout is hitting Britain hard. The conflict, which the International Energy Agency has called the “largest supply disruption in the history of the global oil market,” has driven up energy prices and reversed signs of recovery in the UK economy.
Inflation, which had been projected to fall close to the Bank of England’s 2% target, is now expected to rise in the coming months. Employment has dropped, exacerbated by changes to national insurance, minimum wage rates, and employment laws. Hopes for interest rate cuts this year have evaporated, along with any easing in mortgage costs.
Government debt servicing has become more expensive, diverting resources from public services and defence. While UK growth in the first quarter of 2026 was the highest in the G7, ministers warn that if the war continues, the risk of recession will become critical. The political impact on the Labour government has been obvious, with Chancellor Rachel Reeves reportedly exchanging sharp words with US counterpart Scott Bessent.
The most direct damage has been to energy prices. A 13% increase in the energy price cap is expected, with more rises to come. Homeowners and businesses face a squeeze, with government support limited to the most vulnerable households and energy-intensive industries. The Treasury’s strained finances prevent blanket support schemes like those seen during the Covid pandemic or after Russia’s invasion of Ukraine.
Sir Tony Blair has criticised the government for lacking a “coherent plan” and advocated more North Sea exploration. However, the wholesale price of gas is determined in global markets, and Britain is a minor supplier. With the conflict showing no signs of ending, the UK economy remains vulnerable to further shocks.
