The UK economy just shrank. GDP figures this morning caught the Treasury off guard. A 0.4% contraction in the first quarter. Worse than any City forecast.
The culprit? Iran. Escalation in the Gulf has sent oil prices through the roof. British factories are feeling the pinch. Supply chains, already fragile from Brexit, are seizing up. The Bank of England is watching inflation tick up.
Treasury sources are spooked. They fear a stagflationary shock. Growth flatlines, prices surge. That limits the Bank’s ability to cut rates. The Chancellor is facing calls for emergency measures. But fiscal headroom is thin. Public borrowing is already over target.
Inside the Cabinet, nerves are fraying. Defence hawks want a tougher posture on Iran. The Treasury team wants de-escalation. A classic Whitehall turf war. Expect leaks in the next 48 hours.
Backbenchers are restless. The 1922 Committee is taking soundings. A letter of no confidence isn’t imminent, but murmurs are growing. The PM’s grip is slipping. Polls show Labour opening a 12-point lead.
Business groups are pleading for intervention. The CBI wants targeted support for energy-intensive industries. The Treasury is resisting. “We can’t justify handouts” a senior official told me. But they may have no choice.
The real test comes next month. If the contraction deepens, the government will be forced to act. For now, it’s a waiting game. But in Westminster, waiting is a luxury no one has.
