The UK economy has officially contracted, driven by the deepening crisis in Iran. Treasury sources, speaking on condition of anonymity, have warned of 'prolonged instability' as global oil prices surge and supply chains buckle.
The contraction, confirmed by the Office for National Statistics this morning, marks the first quarterly fall in GDP since the pandemic. The trigger? Escalation in the Iran conflict which has sent crude oil above $120 a barrel, hammering Britain's energy-intensive industries.
One Treasury insider described the mood inside Number 11 as 'grim.' They told me: 'We are looking at scenarios that keep us up at night. This is not a blip. This is structural damage.'
The political fallout is already reaching Westminster. Labour backbenchers are sharpening their knives, demanding the Chancellor come clean on the scale of the damage. Some Conservative MPs, particularly those in Red Wall seats, are privately panicking.
A senior Tory MP, who asked not to be named, put it bluntly: 'Our voters are feeling this at the petrol pump and on their energy bills. If we don't get a grip, we are toast.'
Meanwhile, the Bank of England is facing a nightmare. Inflation, already above 10pc, is set to spike further. Rate setters are caught between raising rates to curb inflation and risking a deeper recession.
The irony is not lost on Westminster veterans. The government spent months boasting about 'Global Britain' and its post-Brexit agility. Now, it is being buffeted by a crisis in the Middle East over which it has little control.
Downing Street insists it is 'monitoring the situation closely.' But the Treasury's private warnings suggest this is more than monitoring. One official described the contingency planning as 'wartime footing.'
Behind the scenes, the key figures are scrambling. The Chancellor has cancelled all non-essential meetings. The Foreign Office is working overtime to de-escalate the Iran situation. But the damage is already done.
In Whitehall pubs, the talk is of a lost decade. 'This feels like 2008 all over again, but with geopolitical chaos added,' one former Treasury adviser told me. 'The difference is, back then we had some tools in the box. Now, the cupboard is bare.'
The next few weeks will be crucial. If the crisis deepens, the government may be forced into emergency measures. Rationing? Price controls? Nothing is off the table, according to one seasoned civil servant.
For now, the PM is clinging to the hope of a diplomatic breakthrough. But in the Lobby, the betting is on a long, grinding crisis. The economy is contracting. The Treasury is warning of instability. And Westminster is, as ever, watching its back.
