Anger grows among UK ministers amid fears Iran war could jeopardise Britain’s fragile finances | Economic policy

Donald Trump branded Britain and other NATO allies “cowards” as anger grows among cabinet ministers that war in Iran could jeopardize Britain’s fragile finances.

Senior members of the UK government are despairing over the potential impact on the economy, with experts warning of high energy prices and rising mortgage and borrowing costs.

They have already begun contingency planning in case the conflict lasts a long time, including considering lowering speed limits to minimize fuel consumption.

As conflicts continue to escalate, Britain has confirmed that it has authorized the use of British military bases to shoot down Iranian missile launchers targeting commercial ships in the Strait of Hormuz. Previously, UK bases were only used to strike Iranian sites targeting British allies and interests in the Gulf states.

Trump said Friday night that the move came “too late,” adding: “They should have moved quicker.” Iranian foreign minister Abbas Araghchi said on social media that Keir Starmer was “putting British lives at risk by allowing British bases to be used for attacks against Iran.”

The change is unlikely to make a significant difference to the conflict, leaving ministers trying to map out worst-case scenarios for the economy.

The Treasury has set up an “Iran board” of ministers and officials who are considering a range of potential options that government sources say include a universal bailout of energy bills. This would be a “last resort” if global prices remain high.

There is anger among some ministers at the US president, who posted on Truth Social on Friday that NATO allies who rejected calls to help reopen the Strait of Hormuz were “cowards” and suggested it would be “too easy for them with little risk”. No 10 declined to comment on the insult.

But on Friday night, Trump said the United States was considering “ending” military operations in Iran. He wrote on the Truth Social platform: “We are getting very close to achieving our goals as we consider halting our major Military efforts in the Middle East regarding the Iranian Terrorist Regime.

“The Strait of Hormuz will need to be protected and controlled by other countries that use it when necessary; the United States is not doing this!”

The prospect of a global energy shock and further rises in the cost of living comes at a critical time for Starmer and Rachel Reeves ahead of local elections in May, where the government hopes to highlight the recovery in the economy.

Chancellor Reeves faces pressure on many fronts on Friday after the cost of government borrowing rose to its highest level since the 2008 financial crisis and analysts said markets were forecasting interest rates to be 4.5 per cent, which would increase the cost of mortgages.

In the face of oil supply shortages caused by the closure of the Strait of Hormuz, the International Energy Agency (IEA) has suggested that the world should use furnaces less and reduce car use to increase resilience.

According to Cornwall Insight, forecasts suggest household energy bills could rise by £330 a year to almost £2,000 this summer after the war sent Britain’s gas market to three-year highs.

With Britain threatened by an economic reset, Culture Secretary Lisa Nandy floated the idea of ​​easing fiscal rules restricting borrowing earlier this week, while others on the Labor Party backbenchers have also been pressing for a change of direction and radical tax reform.

Downing Street sources said the economic situation was “extremely challenging” but they hoped Starmer would take credit for resisting Trump’s war on Iran and focusing on the cost of living and that people would see this was an international crisis.

One said: “It’s frustrating but it shows we were right to start the year focusing on the cost of living. It’s so frustrating that inflation is falling and energy bills are down by £117, we’d all rather it didn’t happen. But if we hadn’t we’d be in a much worse situation now.”

Several Whitehall officials said it would be clear in about two weeks whether the fighting had abated enough to avoid having to subsidize households with energy bills; Whether this package is aimed at the vulnerable or a more universal version, on a smaller scale similar to the rescue package from the Ukraine war under the Conservatives.

No 10 and the Treasury strongly support the idea of ​​support only for those most in need, but political sources admit it may be difficult to restrict financial aid due to resentment from other groups and past debates about withdrawing the winter fuel discount.

Paul Nowak, general secretary of the Trades Union Congress, said: “Employees should not be forced to pay the price for Trump inflation. The government has taken the right first steps to support those most affected by rising energy bills. But ministers must be prepared to go further to protect households and businesses from these negative impacts.”

The Greens called on the government to cover the £300 increase in energy bills due to the war, costing around £8bn.

It appears that all options for energy support are still on the table, depending on whether the war continues and how it will affect the markets. As households tend to use less gas in the summer months, this time of year gives the government more time to consider whether a support package is necessary.

A senior Labor Party source said there were concerns in Downing Street about the cost of repeated bailouts and “no one wants to come back for further tax rises in two years”.

IEA Director Fatih Birol told media outlets on Friday that this was the “largest global energy security threat in history.”

The IEA recommended countries encourage public transport, allow private vehicles to access city centers on certain days, encourage efficient driving habits, avoid air travel where possible and switch to electric cooking.

The Prime Minister’s official spokesman said this was the IEA’s “general advice for countries around the world” and that people in the UK “should continue to go about their days as normal”.

As the crisis in the Middle East threatens global oil supplies, contingency plans to minimize fuel consumption are being worked on by the government, with lower speed limits also being considered as potential.

Sources stressed there were no fuel shortages in the UK but said Department for Transport officials were working with the Department for Energy Security and the Department for Net Zero on an analysis of what measures could be taken to reduce oil demand.

A Cabinet source said there was “deep gloom” in the Treasury and green shoots emerged at the start of the year but Trump’s decision to bomb Iran had disrupted the recovery.

Reeves is understood to be disappointed by the possible reduction in his carefully planned economic margin, which could be down to £7bn to £8bn.

The chancellor said as recently as February that he was “starting to see the economy turning a corner” and added that “this year will be the year when people start to feel the change in their pockets”.

But with fuel prices and mortgage rates already rising and worse likely to come, one government minister admitted: “The jam has been delayed once again.”

Culture minister spokeswoman Lisa Nandy said: “As a member of the government, the culture minister of course supports the government’s position and the economic strategy is decided collectively by the cabinet.”