The numbers are in. And they are ugly. GDP fell by 0.3% in the last quarter. The worst performance since the banking crisis. The reason is no mystery. The war in Iran has seized supply chains. Oil prices have spiked. Inflation is climbing again. The Treasury is now bracing for a recession.
Sources tell me that the Chancellor is locked in crisis talks with the Governor of the Bank of England. But neither has a magic wand. Interest rates are already high. Fiscal headroom is non-existent. The Prime Minister's approval rating is tanking. Backbenchers are restless. They want action. They want spending. But the money isn't there.
The Foreign Office is briefing that the situation in the Gulf is 'volatile.' That is diplomatic code for 'we are in trouble.' Military planners are worried about escalation. The US is pressing for a stronger response. Downing Street is cautious. Another war is not what the country needs.
But the economy is the immediate crisis. Business groups are calling for emergency support. The CBI says firms are 'on the brink.' The TUC demands a windfall tax on energy companies. Both sides of the House are circling. The opposition smells blood. Labour is already calling for a Commons debate. There is talk of a vote of no confidence if the data worsens.
The Treasury is trying to put a brave face. 'We are monitoring the situation closely,' a spokesperson said. That is Whitehall for 'we have no idea what to do.' The fiscal rules are hanging by a thread. The OBR will update its forecasts next month. It will not be pretty.
One senior minister told me: 'We are in uncharted territory. The war is a black swan. But the public will not forgive us if we let the economy slide.' The problem is that there is no easy fix. Spending more would risk a bond market revolt. Cutting taxes would be popular but inflationary. The Chancellor is stuck between a rock and a hard place.
The PM is trying to project calm. He is scheduling a Cobra meeting for tomorrow. But the mood in the party is grim. MPs are getting angry emails from constituents. Small businesses are struggling. Fuel costs are soaring. The war in Iran is a distant conflict, but its effects are hitting home.
The question now is whether the government can survive this. It is not just about the economy. It is about competence. The public has a low tolerance for crisis. And the opposition is ready to pounce. Watch for the next batch of polling. It will be brutal.
For now, the Treasury is hunkering down. But the clock is ticking. Recession is not yet official. But it is coming. And everyone in Whitehall knows it.
