Britain is likely to be hit by rising inflation because of the US war with Iran, the UK chancellor has said, as she suggested that a “rapid de-escalation” would be the best protection against a jump in energy prices.
Both Rachel Reeves and the prime minister, Keir Starmer, suggested the government would be prepared to intervene to protect UK households against major cost-of-living shocks as oil prices surged past $100 (£75) a barrel for the first time since 2022.
Starmer said a long-term US-Iran war would affect the “lives and households of everybody” but said the government would seek to “get ahead” if the conflict were prolonged.
Ministers are understood to be looking at ways to potentially mitigate the rising costs on energy bills – and are likely to come under pressure to cancel a planned 5p rise in fuel duty this autumn.
Reeves, who spoke to G7 finance ministers earlier on Monday, said the Treasury was ready to support a coordinated release of collective International Energy Agency oil reserves.
“I will take the necessary decisions to help families with the cost of living and protect the public finances,” Reeves told MPs. “I am clear-eyed about my response to the current situation. My economic approach will both be responsive to a changing world and responsible in the national interest.”
The chancellor said discussions would also be held on mitigations for families reliant on heating oil who did not have protection via the energy price cap. Petrol forecourt bosses have also been called into the Treasury and warned about price gouging.
Edmund King, the president of the AA, said drivers should not change their refuelling habits but could “consider cutting out some non-essential journeys and changing their driving style to conserve fuel”.
Simon Williams, the RAC’s head of policy, said pump prices had “rocketed” in the last week. “Petrol is up 5p to 137.5p and diesel up 9p to 151p a litre since the current crisis began,” he said. “Unleaded is almost certainly going to reach an average of 140p in the next week or so while diesel looks highly likely to climb to at least 160p a litre.”
Starmer said the government would “get ahead, to look around the corner, to work with others.
“But it is important to acknowledge that work is needed, because people will sense … that the longer this goes on, the more likely the potential for an impact on our economy, impact into the lives and households of everybody and every business.”
Most UK households will be protected in the short term by the energy price cap, but the UK’s reliance on gas from the Middle East makes it especially vulnerable to what is in effect a blockade of the strait of Hormuz, through which about 20% of the world’s liquid natural gas is transported.
