Skyrocketing global energy prices as a result of escalating conflict in the Middle East will jeopardize Rachel Reeves’ plan to beat inflation and revive growth, economists have warned as she prepares to present her spring forecast later today.
Responding to the latest projections from the independent Office for Budget Responsibility (OBR), the chancellor will insist she has “the right economic plan for our country, in a world that has become more uncertain.”
The new forecasts are expected to show the public finances are moving in the right direction, with the £22bn fiscal cushion she left behind against her fiscal rules in the November budget little changed.
However, experts said the OBR’s projections could soon look outdated, if Monday’s surge in oil and gas prices proves long-lasting.
Benchmark gas prices in Europe rose more than 40% on Monday, with the price of a barrel of Brent crude rising 6%, amid fears about supply disruptions.
“Just when Reeves thinks the economy is a little more balanced, the government is now facing a crisis that is completely out of its control and creating another huge headwind,” said Mujtaba Rahman of consultancy Eurasia Group.
“The two areas that have been touted the most are the cost of living and interest rates, and those are the two areas of the economy that are now most at risk.”
However, Reeves hopes to project stability and continuity in Tuesday’s statement after last fall’s tumultuous pre-budget period.
He will insist that “because of the decisions we have already made, we have a stronger and more secure economy. Inflation and interest rates are falling. And everywhere in Britain, workers are better off.”
But James Smith, chief economist at the Resolution Foundation think tank, said that as a result of the Gulf crisis “inflation prospects are higher; cost of living pressures are higher, particularly if the conflict continues for any period of time. It depends on how permanent everything turns out to be.”
Before the US bombing campaign began, markets were pricing in an 80% chance of an interest rate cut at the Bank of England’s next policy meeting on March 19. By late Monday afternoon, that figure had fallen to just over 50%.
Reeves and his team have pinned their hopes on further rate cuts in the coming months, to encourage businesses to invest and consumers to spend.
Chris Beauchamp, chief market analyst at trading platform IG, compared the current situation to the dramatic rise in oil and gas prices that followed the Russian invasion of Ukraine.
“Hopes that price pressures will ease and consumers will be able to spend more could be dashed as a price rise similar to that in 2022 causes a major headache for policymakers and consumers alike, potentially disrupting the plan for further rate cuts in the UK,” he said.
The Liberal Democrats urged the chancellor to cancel a planned increase in fuel taxes in September, to cushion the potential blow of rising prices.
Daisy Cooper MP, the party’s Treasury spokesperson, said: “With fuel prices set to soar as a result of Trump’s war with Iran, it would be disastrous for Rachel Reeves to press ahead with a fuel tax rise in September. It is the least she can do to help families weather the storm.”
Since the autumn budget, GDP has been weaker than expected, with growth of just 0.1% in the last quarter of 2025; but recent business surveys have pointed to a more positive outlook.
The OBR forecast will also take into account the lower yield (effectively the interest rate) on UK government bonds since the Budget, which helps the public finances by making it cheaper for the Treasury to borrow.
However, this move in favor of Reeves also appears to be at risk due to the Middle East conflict. There was a modest sell-off in bonds on Monday, pushing 10-year yields up five basis points, or 0.05%, to 4.28%.
