The Treasury is drawing up contingency plans to stabilise the economy as the widening conflict in Iran sends crude oil prices through the roof. With Brent crude surpassing $120 a barrel, the spectre of 1970s-style stagflation looms large. This is not a drill.
Gilt yields are spiking as investors flee to safe havens, and the pound is taking a beating. The Chancellor is caught between a rock and a hard place: do they cut fuel duty further, risking fiscal credibility, or let the market take its course and watch inflation reignite? The market is pricing in a 50 basis point hike at the next MPC meeting, but the Bank of England knows that raising rates now would crush what little growth remains.
The real fear is capital flight: foreign investors are already dumping UK bonds, demanding a premium for holding our debt. The 'fiscal headroom' Rishi Sunak boasted about has evaporated. The only certainty is that the consumer will pay the price, through higher petrol, heating bills, and mortgage rates.
This war is a disaster for a country already battered by Brexit and a cost-of-living crisis. The Treasury's 'Resilience Room' has been activated, but no one is expecting a miracle. The bottom line: the UK economy is far too exposed to these shocks, and the cupboard is bare.
