Introduction: Reeves to respond to spring forecast after oil and gas prices surge
Good morning.
“Events, dear boy, events”. Rachel Reeves may have the (probably apocryphal, oft-quoted) wisdom of Harold Macmillan in mind today, as she responds to the latest official assessment of the UK economy.
The Office for Budget Responsibility’s new Spring Forecast could, in happier times, have brought the chancellor good news this afternoon.
Economists predict they will show that the UK is still keeping within the OBR’s fiscal forecasts – helped by a record budget surplus in January – and that inflation is heading down towards target.
However, the Middle East crisis mean such predictions are out of date before they’re even published, as the world faces the threat of a new energy crisis.
Yesterday, liquefied natural gas (LNG) prices rocked by over 40%, and oil rose by over 7%, after Qatar’s state-run energy firm halted LNG production and Saudi Arabia temporarily shutting down some units of its massive Ras Tanura oil refinery following attacks by Iran.
These moves, as the US-Israel war on Iran rages, risk reigniting the cost-of-living crisis.
As economists at Investec explain:
The main economic consequence of higher energy prices would be to boost inflation.
In the UK, illustratively, the current level of the oil price would, if maintained, add about 0.2%pts to headline inflation via higher petrol prices; and a sustained 40% shift up in natural gas price futures would boost this by a further 0.7%pts or so, via higher household utility bills.
We’re not expecting major policy changes today, as the government has committed to holding just one major fiscal event each year in the autumn. That’s why it’s billed as the ‘spring forecast’ not the ‘spring statement’.
Instead the chancellor is expected to insist the government has the “right economic plan for the country” in a “yet more uncertain” world.
Reeves is expected to tell MPs:
“Stability in the public finances, investment in infrastructure and reform to our economy.
Building growth not on the contribution of a few people or a few parts of the country, but in every part of Britain with a state that doesn’t stand back, but steps up.”
The agenda
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8am GMT: Worldpanel supermarket inflation and sales figures
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9.30am GMT: ONS data: Mergers and Acquisitions involving UK companies: October to December 2025
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10am GMT: Flash estimate of eurozone inflation in February
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12.30pm GMT: spring forecast statement from Chancellor Rachel Reeves
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1pm GMT (roughly): Office for Budget Responsibility’s spring forecasts published
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2.30pm GMT: Office for Budget Responsibility press conference
Key events
Airline stocks are falling sharply again, as the travel industry tries to adjust to the shutdown of Gulf airspace.
British Airways’ parent company, IAG, are down 6.8% today, while Air France has lost 6.9% and Lufthansa has dropped by 4.4%.
Low-cost airlines are under pressure too; Wizz Air is down 5.5% while Ryanair has lost 2.9%.
The unprecedented disruption to all three major hubs in the Middle East – Dubai, Abu Dhabi and Doha – has created massive disruption for passengers:
Chris Beauchamp, chief market analyst at IG, says:
“The widening war in the Middle East continues to be a catastrophe for the international flag carriers, whose key business routes to the Middle East are now all but off limits until the conflict winds down.
Budget airlines have been less affected for the moment, but with the spectre of inflation rising once more consumers are going to start worrying about holiday spending in coming months.
If the conflict ends in a reasonable time frame then the hit to share prices will be temporary, but if damage to oil infrastructure intensifies and prices go much further then it will take much more time before earnings recover.”
Lisa O’Carroll
Business secretary Peter Kyle has asked all businesses who have operations in the middle east to register their staff with the local embassies.
He told a conference of manufacturing interests in London on Tuesday that the government would be partnering with Make UK, the trade organisation, “in the coming days” to help navigate the current conflict.
Kyle told the Make UK conference:
“My department is working across government to ensure that you get the right guidance and the right tools…
We also want to manage any disruption and trade in the region and also supply chains across the region and back here my department is working flat out on doing this”.
Brent crude oil at 18-month high
The oil price is now trading at its highest level in 18 months.
Brent crude has climbed by over 7% this morning, to a high of $83.47 a barrel, adding to Monday’s 7.2% rise.
That’s its highest level since July 2024.
The primary impact of the conflict in the Middle East is being felt in energy markets, points out Patrick Farrell, group chief investment officer at wealth manager Charles Stanley, adding:
Attention has also turned to the Strait of Hormuz – a critical maritime chokepoint through which 20%–30% of global oil and liquefied natural gas (LNG) shipments pass. While Iran has not formally closed the waterway, vessels have reported warnings from Iranian forces, and several tanker operators have temporarily paused shipments as a precaution. These developments naturally raise questions about global energy prices, inflation, and market volatility.
Wall Street is set for losses when trading begins in three and a half hours.
The futures market is signaling that the S&P 500 share index could be down 1.75%, with the Dow Jones industrial average on track for a 1.66% drop.
Tom Knowles
Foreign companies bought up £27.4bn worth of UK companies in the final quarter of 2025, the largest amount in four years, according to the Office for National Statistics.
UK firms have become an attractive target for foreign investors who are capitalising on cheap valuations, amid a wider uptick in global dealmaking.
The ONS said the £27.4bn figure was the highest since the second quarter of 2021 and £19.8bn more than the previous quarter, due to the number of deals worth more than £1bn.
The total was 16 times bigger than the £1.7bn of outward deals – British firms buying foreign businesses – that occurred over the same period. The value of domestic mergers and acquisitions (M&A), in which UK companies acquire other domestic firms, was also low at £1.8bn in the final quarter of 2025, some £5.3bn less than the previous quarter.
The ONS said a notable foreign acquisition of a UK company was the US firm Doordash buying Deliveroo for £2.9bn.
Others big deals have included the British industrial group Spectris being bought for £4.8bn by the US private equity group KKR and the professional services company JTC being acquired by the private equity firm Permira for £2.7bn.
While the value of foreign takeovers increased, the total number of M&A deals fell slightly, reaching 444 in the final quarter of 2025, down 53 from the previous year.
The BBC’s economics editor, Faisal Islam, points out that the gas price is now much higher than the OBR assumed in its new forecasts, to be released in less than three hours.
That could be ‘problematic’ for July’s energy price cap – the next time that the cap on UK energy bills will be set.
Not great.
The UK gas price has gone up another 40% this morning… the per thermal price is now 150p… which does get to the sustained painful levels though not the actual peak seen in Russia- Ukraine crisis.
For reference the OBR assumption at the moment likely to be confirmed… pic.twitter.com/D98I1VSRF6
— Faisal Islam (@faisalislam) March 3, 2026
The pan-European Stoxx 600 share index is continuing to slide, down 3% today.
London stock markets hitting new lows
The rout in London’s stock market is turning into quite a slump.
The FTSE 100 share index has now lost 303 points, or 2.8% of its value, to 10,475 points – well away from last week’s record high of 10,934 points.
Airlines, such as IAG (-6%) and easyJet (-5.1%), are among the top fallers, hit by higher oil prices and disruption to flights in the Middle East.
The smaller FTSE 250 index, which tracks medium-sized companies, has lost 2.9% this morning.
Overall, London is firmly on track for its worst day since last April, when Trump’s trade war spooked markets.
Petrol retailers urge Reeves to abandon fuel duty increases
Petrol retailers are warning that prices at the pumps will have to rise, due to the jump in crude oil prices.
Gordon Balmer, executive director of the Petrol Retailers Association, says:
“The conflict in the Middle East has increased the wholesale cost of petrol and diesel, which will mean pump prices will have to go up. Rising fuel prices hurt the economy in the form of higher inflation, impacting already hard-pressed household budgets.
To help motorists and businesses, I am today writing to the Chancellor urging her to abandon the planned fuel duty increases.”
Rachel Reeves announced last year that the long-held discount in fuel duty would be scrapped from September. Prices are set to rise by 1p a litre, followed by two increases of 2p each in subsequent years.
Cancelling that rise would leave the chancellor with a shortfall in her revenue forecasts, and I imagine she would rather wait until nearer the autumn to weigh up the situation….
Ireland’s Taoiseach has said there is “no excuse for prices going up at the pumps yesterday” because Irish oil “is coming from the North Sea and we don’t want any price gouging going on”, PA Media report.
“We don’t want anyone taking unfair advantage of consumers and people because of this right now,” Micheal Martin said.
The Irish premier was speaking to the press before his cabinet met on Tuesday when he was asked about reported increases in petrol and home heating oil costs.
Martin added:
“In relation to this, we met the competition and consumer authority yesterday and we have asked them to examine the industry and the sector, in terms of any unfair pricing practices.”
Spring forecasts: What’s expected
The crisis in the Middle East, and the turmoil in the financial markets, means the UK’s new spring forecast, and Rachel Reeves’s statement at lunchtime, may get less attention than normal.
That might not displease the Treasury – they’ve already been hints that today will be a relative non-event, with no plans for any surprise policy changes.
David Aikman, director of NIESR (The National Institute of Economic and Social Research) points out that the economic background is “mixed”:
“Today’s Spring Statement lands against a mixed economic backdrop: inflation has fallen and government borrowing costs have eased, but unemployment has risen and the growth outlook has weakened.
The immediate risk is a renewed energy shock. The conflict in Iran has pushed up oil and gas prices and disrupted shipping routes. If it persists, it will raise household bills and business costs in the months ahead, putting renewed upward pressure on inflation – and potentially interest rates.
That uncertainty underlines why fiscal policy needs further consolidation: with debt still unsustainably high, the priority for the Chancellor should be to build a credible medium-term plan to put the public finances on a more resilient path, with debt falling as a share of the economy over time.”
Rupert Thompson, chief economist at asset manager IBOSS Chief Economist, says the forecasts could be the least important development today!
The OBR will put out a new set of economic forecasts which should see the fiscal headroom little changed.
With no real pressure this time – unlike in the last two budgets – to raise revenue, Rachel Reeves should stick to her longstanding intention of only one major budget a year and keep any policy changes to a minimum.
Kathleen Brooks, research director at XTB, agrees that the spring forecasts will be overshadowed by events in Middle East, adding:
There could be some good news on the public finances, with borrowing for this fiscal year expected to be slashed by 20%. The bond market has benefitted from this in recent weeks, and in February, Gilts were the top performing global sovereign bond.
A subdued growth outlook is also expected, and the OBR may sound a warning on the unemployment rate. A rapid increase in unemployment could hurt the UK’s fiscal outlook and the amount of available headroom if it limits tax receipts and also increases the bill for unemployment benefits.
European forward power contracts are rising this morning too, tracking the jump in oil and gas prices.
Reuters has the details:
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The German year-ahead baseload contract was up 5.6% at €85 ($98.80) per megawatt hour at 0858 GMT, while the equivalent French price rose by 3.5% to €54/MWh.
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On the spot side, contracts rose on an expected drop in wind power supplies.
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The German day-ahead baseload power contract rose 26.3% to €131.75/MWh, LSEG data showed.
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The equivalent French contract was up 10.3% at €64/MWh.
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German wind power output is expected to fall by 4.8 gigawatts on Wednesday to 5.1 GW, while French wind power generation is projected to rise by 1.6 GW to 4.6 GW, LSEG data showed.
UK gas prices hit three year high
UK gas prices have hit a three-year high this morning, driven up by fears of shortages due to the Middle East conflict.
The month-ahead UK gas price has jumped by 30% today, to 148p a therm, adding to its 44% surge yesterday – and almost double its levels last week.
Yesterday’s news that QatarEnergy has halted LNG production at military attacks on two operational facilities has created uncertainty over how long gas exports will be disrupted.
Jess Ralston, head of energy at the Energy and Climate Intelligence Unit (ECIU) says this shows the importance of cutting reliance on gas:
The Energy Crisis Commission warned that the UK remained dangerously underprepared for another energy crisis. Nobody knows exactly how the next few weeks will play out, but with homes and businesses still facing the debt and after-effects of the last gas crisis, people will understandably be concerned.
“So much focus is put on drilling in the North Sea, but when you actually look at the regulator’s official numbers you realise more drilling makes a difference of a few percentage points; it’s a red herring. If you truly want the energy used in Britain to come from Britain, the fact is the only way to do that is to reduce demand for gas, given the North Sea is on the decline, has been for years and that will continue even if new drilling happens.
“This means replacing gas boilers with electric heat pumps running on British renewables that can be built relatively quickly. If you don’t, you may end up with gas boilers running increasingly on Qatari gas, which currently can’t get out of the Strait of Hormuz, and the price of all gas is dictated by international markets.
“Fortunately, any looming crisis is unlikely to hit electricity bills quite as hard because more renewables have been linked up to the grid meaning we don’t have to run gas power stations as much. Last year renewables cut the wholesale price of electricity by a third.”
UK bond yields jump as investors anticipate inflation spike
Government bond prices are slumping today, as investors anticipate an inflationary shock from the Middle East crisis that will make it harder to cut interest rates.
UK bonds are under pressure, driving down prices which lifts the yield, or interest rates, on the debt.
The yield on 10-year UK bonds has jumped by 11 basis points (0.11 percentage points), with 30-year yields up 9bps.
Shorter-dated bonds are suffering too, pushing up the yield on two-year bonds by 13.5bps now.
This follows today’s jump in oil and gas prices, which threaten to push up inflation.
That’s why the chances of a cut to UK interest rates this month have now fallen below 30%. The markets are also only pricing in one Bank of England rate cut this year, down from the two expected last week.
Neil Wilson, investment strategist at Saxo UK, says:
On the whole selling in stocks and bonds remains orderly and nowhere near pricing a worst-case scenario.
Spring Statement today – chancellor Rachel Reeves will deliver a message of stability amid the chaos.
The worry is the rise in yield eroding headroom as inflation risks push back the Bank of England’s rate-cutting schedule. The 10yr gilt yield has jumped since the weekend from a little above 4.2% to above 4.4%.
The markets see fewer US interest rate cuts this year too.
According to Bloomberg’s David Finnerty, at the end of last week the swaps markets priced in 61 basis points of cuts in 2026 by the US central bank. Now its down to 46 points – which would mean fewer than two quarter point cuts from the Fed this year.
IMF: We are monitoring Middle East situation closely
The International Monetary Fund has just released a statement on the Middle East crisis.
In it, the IMF points out the crisis has already disrupted trade and economic activity, rocked the financial markets, and driven up energy costs.
It will give a “comprehensive” view of the economic impact of the crisis in April, when it releases its next set of economic forecasts.
The Fund says:
We are closely monitoring developments in the Middle East. So far, we have observed disruptions to trade and economic activity, surges in energy prices, and volatility in financial markets.
The situation remains highly fluid and adds to an already uncertain global economic environment. It is too early to assess the economic impact on the region and the global economy. That impact will depend on the extent and duration of the conflict.
We will provide a comprehensive assessment in our April World Economic Outlook.
Victoria Scholar, head of investment at interactive investor, sums up the situation in the markets today, with the UK’s FTSE 100 index now down 2.25% or 240 points:
Almost all stocks on the FTSE 100 are in the red with only one notable gainer, Smith & Nephew thanks to a price target upgrade from Barclays. Miners and financials are among the biggest losers including Antofagasta, Barclays, Anglo American and Prudential, reflecting the increased geopolitical risk in the Middle East. Intertek has also plunged on the back of earnings.
Oil continues its ascent with Brent and WTI both up close to 4% extending gains after brent crude jumped over 7% on Monday. This was its biggest daily gain since March 2022 pushing the benchmark above $80 a barrel, sparking fears about resurgent inflation. European natural gas prices are also surging around 20% this morning after Qatar decided to stop production. The war between Iran and the US and Isael has intensified after a US embassy in Riyadh was reportedly hit by drones and Isarael attacked Tehran and Beirut.
Gold and the dollar are also staging gains with the precious metal logging its fifth consecutive positive day, rallying beyond Monday’s four-week high. The US dollar is pushing higher against EUR, GBP, JPY and AUD.
Despite the intensity of the conflict, US equities were remarkably resilient on Monday with the Nasdaq and the S&P 500 closing modestly higher while the Dow ended just below the flatline. However, US futures are pointing to a weaker session on Wall Street with all three major averages on track to open down by more than 1% eac
Pound hits 2026 low
The pound has hit its lowest level against the US dollar in almost three months this morning.
Sterling is down 0.8% against the dollar, or around one cent, to $1.33, the lowest since 10 December.
The dollar is continuing to rally against other currencies, as investors shift their money into safe haven assets.
FTSE 100 slump deepens
The London stock market is plunging deeper into the red – a dreadful backdrop for the chancellor’s statement this lunchtime.
The FTSE 100 index of blue-chip shares has now tumbled by 215 points, or 2% 1.8%, to 10,564 points.
That’s its lowest level in almost two weeks, and leaving the Footsie on track for its worst day in 11 months – since the ‘Liberation Day’ tariff shock of April 2025.
Chances of UK interest rate cut in March tumble
The chances of a UK interest rate cut this month are plummeting, as the Middle East crisis drives up oil and gas prices.
The money markets now indicate there’s just a 29% chance that the Bank of England lowers interest rates at its next meeting, 19 March. That’s down from 80% last week, before the Iran war erupted.
The interest rate, or yield, on UK two-year bonds has surged today too – up 12 basis points (0.12 percentage points) as the City anticipate that a rate cut is much less likely, given fears of an inflation spike.
That will disappoint borrowers hoping for cheaper interest rates…. and is also a blow to Rachel Reeves, who has taken the credit for the six rate cuts since August 2024.
Jemma Slingo, pensions and investment expert at Fidelity International, says:
“Stubbornly high oil and gas prices could impact economies around the world. Specifically, they could be inflationary and disrupt plans to cut interest rates. The Bank of England is due to announce its next rate decision on 19 March. The bank’s Monetary Policy Committee has held several nail-biting votes in recent months, and conflict could complicate things further.
“For now, however, there is no certainty around what will happen to energy supplies or what this means for the global economy.
