UK Chancellor Rachel Reeves is set to respond to the latest economic outlook as a sharp surge in global energy prices threatens to undermine expectations of easing inflation.
The new spring forecast from the Office for Budget Responsibility (OBR) was initially expected to bring relatively positive news for the government, with economists predicting the UK would remain within its fiscal rules and that inflation would continue moving toward target.
However, the escalating conflict involving Iran has sent shockwaves through energy markets, raising the prospect of a renewed global energy crisis and potentially altering the economic outlook before the forecast is even published.
On Monday, liquefied natural gas prices surged by more than 40%, while oil prices climbed over 7% after Qatar temporarily halted LNG production and parts of Saudi Arabia’s Ras Tanura oil refinery were shut down following attacks linked to Iran. The spike in energy prices has pushed global stock markets lower and intensified concerns about rising inflation.
Economists warn that higher energy costs could quickly feed into consumer prices. Analysts estimate that sustained oil prices at current levels could add roughly 0.2 percentage points to UK headline inflation through higher petrol costs, while a prolonged 40% increase in gas prices could add a further 0.7 percentage points through rising household energy bills.
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The surge risks reigniting the UK’s cost-of-living pressures just as inflation had begun to ease.
Despite the volatile outlook, the government is not expected to introduce major policy changes during the spring forecast announcement. The government has committed to holding only one major fiscal event each year in the autumn.
Reeves is expected to argue that the government remains committed to what she describes as the “right economic plan for the country,” emphasizing fiscal stability, infrastructure investment, and economic reform.
“Stability in the public finances, investment in infrastructure and reform to our economy,” Reeves is expected to tell MPs, adding that the government aims to build growth “in every part of Britain with a state that doesn’t stand back, but steps up.”
Meanwhile, fuel retailers are urging the government to reconsider planned increases in fuel duty as rising oil prices threaten to push petrol prices higher.
Gordon Balmer, executive director of the Petrol Retailers Association, warned that the conflict in the Middle East has already increased wholesale fuel costs.
“The conflict in the Middle East has increased the wholesale cost of petrol and diesel, which will mean pump prices will have to go up,” Balmer said, adding that higher fuel prices could further strain household budgets.
Last year, Reeves announced plans to scrap the long-standing fuel duty discount from September, which would raise fuel prices by 1p per litre initially, followed by two additional increases of 2p in subsequent years.
Retailers are now calling on the government to abandon the planned rise, warning that higher fuel costs could add further pressure to inflation and the broader economy.
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