Chancellor Rachel Reeves has warned that the UK faces rising inflation due to the US conflict with Iran, describing 2026 as a potential turning point for the economy. Speaking in Parliament, she said the situation in the Middle East would likely push up prices in the coming months, but stopped short of announcing new relief measures for households.
Reeves rebuffed calls to scrap a planned 5p rise in fuel duty in September, despite the Conservatives forcing a Commons vote on the issue. Instead, she said the competition watchdog has been ordered to monitor fuel pump prices and domestic heating oil costs to prevent wartime profiteering.
Oil prices surged past $100 a barrel for the first time since 2022, reaching as high as $119.50 before falling back below $90 after Donald Trump signalled the conflict might end soon. The Bank of England is now expected to keep interest rates on hold through 2026, with a small possibility of a rise in 2027.
Prime Minister Keir Starmer said a long-term war would affect the lives of everybody, but the government would seek to get ahead if the conflict was prolonged. Both he and Reeves suggested the government could intervene to protect households against major cost-of-living shocks at the next energy price cap.
Pressure is mounting on the chancellor to do more. The Trades Union Congress described a 'Donald Trump-made cost of living crisis', while over 40 Labour MPs in rural seats warned that people reliant on heating oil face being plunged into poverty. About 1.5 million UK homes off the gas grid are not protected by the energy price cap, and some have reported heating oil price increases of up to 117%.
