Growing Cabinet Frustration Over Economic Impact of Iran Conflict
Donald Trump has labelled the UK and other NATO allies as “cowards,” intensifying cabinet frustration over the economic risks posed by the war initiated by the former US president.
Senior government officials express deep concern about the potential economic fallout, with experts warning of rising energy costs and increased mortgage and borrowing rates. Contingency plans are underway to address a prolonged conflict, including proposals such as reducing speed limits to conserve fuel.
UK Authorises Use of Military Bases Against Iranian Targets
As tensions escalate, the UK has authorised the use of British military bases to strike Iranian missile launchers targeting commercial vessels in the Strait of Hormuz. Previously, UK bases were only used against Iranian sites threatening British allies and interests in Gulf states.
Trump criticised the UK’s timing, stating on Friday night that the action was “very late” and that the UK “should have acted faster.” Iran’s foreign minister, Abbas Araghchi, responded on social media, accusing Labour leader Keir Starmer of “putting British lives at risk by allowing UK bases to be used for aggression against Iran.”
The adjustment in military engagement is unlikely to significantly alter the conflict’s trajectory, prompting ministers to prepare for worst-case economic scenarios.
Treasury Establishes Iran Board to Explore Economic Responses
The Treasury has formed an “Iran board” comprising ministers and officials to evaluate various options, including a potential universal bailout for energy bills as a last resort should global prices remain elevated.
Some ministers express anger towards President Trump, who on Truth Social criticised the UK for declining his requests to assist in reopening the Strait of Hormuz, claiming it would be “so easy for them to do, with so little risk.” No 10 declined to comment on the insult.
On Friday night, Trump indicated the US might “wind down” military operations in Iran, posting on Truth Social:
“We are getting very close to meeting our objectives as we consider winding down our great Military efforts in the Middle East with respect to the Terrorist Regime of Iran. The Hormuz Strait will have to be guarded and policed, as necessary, by other Nations who use it – The United States does not!”
Economic Pressures Mount Ahead of Local Elections
The prospect of inflation and rising living costs arrives at a critical moment for Starmer and Chancellor Rachel Reeves ahead of May’s local elections, where the government aims to highlight economic improvements.
Reeves faces multiple pressures after government borrowing costs hit a 15-month high on Friday, with analysts forecasting interest rates reaching 4.5%, which would increase mortgage expenses.
In response to oil supply shortages caused by the Strait of Hormuz closure, the International Energy Agency (IEA) recommended reducing oven use and car travel to enhance energy resilience.
Forecasts from Cornwall Insight suggest household energy bills could rise to nearly £2,000 this summer due to the war pushing UK gas prices to three-year highs.
Calls for Fiscal Flexibility and Tax Reform
With the UK’s economic recovery at risk, Culture Secretary Lisa Nandy proposed loosening fiscal borrowing rules earlier this week. Additionally, Labour backbenchers advocate for a shift in policy direction and comprehensive tax reform.
Downing Street sources acknowledge the “extremely challenging” economic environment but hope Starmer will receive recognition for resisting Trump’s Iran war and focusing on the cost of living, emphasizing the international nature of the crisis.
“It is frustrating, but it does show we were right to go into the year with a cost of living focus. It is so annoying when inflation was coming down and energy bills were falling by £117, we would all rather it hadn’t have happened. But if we hadn’t done that, we would be in a much worse position now.”
Whitehall officials expect clarity within two weeks on whether the conflict has de-escalated sufficiently to avoid energy bill support measures, which could range from targeted assistance for vulnerable groups to a universal bailout similar to the Ukraine war support under the Conservatives, albeit on a smaller scale.
No 10 and the Treasury prefer targeted support but acknowledge political challenges due to public resentment and previous controversies such as the winter fuel allowance withdrawal.
Trade Unions and Greens Demand Greater Support
Paul Nowak, Trades Union Congress general secretary, stated:
“Working people must not be left to pay the price for Trumpflation. The government has taken the right first steps to support those hardest hit by rising energy bills. But ministers should be ready to go further to protect households and businesses from the fallout.”
The Green Party has called for the government to cover a £300 increase in energy bills caused by the conflict, estimating the cost at approximately £8 billion.
All energy support options remain under consideration, dependent on the war’s duration and market impact. The summer season provides additional time to assess the need for assistance, as household gas consumption typically declines.
A senior Labour source expressed concern within Downing Street about the cost of repeated bailouts, noting that “no one wants to be coming back for more tax rises in two years’ time.”
International Energy Agency Warns of Historic Energy Security Threat
IEA Director Fatih Birol described the situation as “the greatest global energy security threat in history” during media interviews on Friday.
The IEA recommended measures such as promoting public transport, allowing private cars access to city centres on alternate days, encouraging efficient driving, avoiding air travel where possible, and switching to electric cooking.
The prime minister’s official spokesperson clarified that this advice is general for countries worldwide and that UK residents should continue their daily routines normally.
Government Considers Fuel Conservation Measures
Contingency plans to reduce fuel consumption are being developed, with lower speed limits among potential measures as the Middle East crisis threatens global oil supplies.
Officials emphasize there is no fuel shortage in the UK but note that the Department for Transport is collaborating with the Department for Energy Security and Net Zero to analyze possible demand reduction strategies.
A cabinet source described the mood in the Treasury and No 10 as one of “deep gloom,” noting that emerging economic recovery signs at the start of the year have been disrupted by Trump’s decision to bomb Iran.
Chancellor Reeves is reportedly frustrated by the likely reduction in her planned economic headroom, potentially diminished by £7 billion to £8 billion.
As recently as February, Reeves stated she was “beginning to see the economy turning a corner” and suggested “this will be the year that people start to feel the change in their pockets.”
However, with rising fuel prices and mortgage rates, a government minister conceded:
“It’s jam postponed, once again.”
