As the conflict between the US, Israel, and Iran escalates, the first tangible shocks are already being felt in British pockets and on the trading floors of the City. The price of a barrel of oil has surged above $100 for the first time since 2022, adding around 3p to the cost of a litre of unleaded petrol and sending London’s FTSE 100 index tumbling nearly 2% at the open.
Against this volatile backdrop, Prime Minister Keir Starmer has issued a stark warning: the longer the war continues, the greater the potential for severe economic damage to the UK, impacting “every household and every business.” He insisted the government was working to “get ahead” of the crisis, revealing that Chancellor Rachel Reeves speaks to the Governor of the Bank of England “on a daily basis” to assess the risks.
Economic Ripples and Domestic Pressures
The immediate concern is inflation. As an energy importer, the UK is vulnerable to persistent high prices, which risk stoking inflation and making imminent interest rate cuts by the Bank of England unlikely. While the energy price cap offers short-term protection, forecasts suggest household energy bills could still rise by approximately 10% in July, adding £160 to the average annual bill. Disruption to vital global trade routes, particularly the Strait of Hormuz, remains a critical threat.
The economic unease is already translating into political pressure. Conservative leader Kemi Badenoch has seized on the crisis to challenge the government’s fiscal plans, announcing she will force a House of Commons vote to extend a temporary 5p cut in fuel duty due to expire in September. She criticised Chancellor Reeves for not acting in last week’s spring statement, arguing that with “serious shocks to energy prices” looming, keeping duty low is essential to help families.
A government policy paper indicates the current plan is to freeze fuel duty rates until August 2026, gradually returning to March 2022 levels by March 2027. However, the political heat is now on to cancel the planned increase this autumn, with the Liberal Democrats also calling for its scrapping, warning the conflict could push petrol to record highs.
Amid the global anxiety, the UK is quietly pressing ahead with measures to ease post-Brexit trade frictions with the EU. The government announced it will align with EU production and marketing laws for goods including jams, cereals, frozen food, and cut flowers. The Department for Environment, Food and Rural Affairs (Defra) stated that post-Brexit divergence had often been “minor or minimal,” and the move is seen as a precursor to a broader sanitary agreement ahead of a UK-EU summit in July. It follows a House of Commons select committee report which found over 16,000 businesses, many food producers, had stopped exporting to the EU due to burdensome paperwork and compliance checks.
A Battle Over British Justice
Domestically, the government faces a significant rebellion from its own backbenchers over contentious legal reforms. Dozens of Labour MPs are set to defy the whip over the Courts and Tribunals Bill, with up to 65 reportedly planning to abstain at its second reading tomorrow. The bill, which aims to tackle massive court backlogs, includes measures to restrict the right to jury trial for certain offences and allow judge-only trials in some circumstances.
Justice Secretary David Lammy has defended the bill, stating the criminal courts were inherited “on the brink of collapse” and that the reforms are needed to deliver “swift and fair justice.” However, the plans have met fierce opposition. The Criminal Bar Association has condemned them as a “draconian evisceration” of a fundamental right, arguing the government’s impact assessment lacks proof of urgent necessity. Their opposition is bolstered by a report from the Institute for Government which found that judge-only trials would save less than 2% of Crown Court time.
Criticism of the government’s approach extends beyond the legal community. David Weaver, chair of Operation Black Vote, has warned that Labour is in “deep trouble” with Black voters, who feel the party is not standing for anything specific on racial justice. He argued that plans to restrict juries would “heighten, normalise and embed” racial disproportionality in the justice system.
Diplomatic Strains and Military Posture
The Iran conflict has also exposed tensions in the UK’s most important diplomatic relationship. Prime Minister Starmer’s refusal to involve the UK in offensive strikes against Iran, agreeing only to defensive use of bases like RAF Fairford, has drawn repeated insults from US President Donald Trump. Downing Street has characterised a weekend call between the two leaders as “constructive,” but declined to say whether Trump’s derogatory comments were discussed.
Senior Labour MP Emily Thornberry, chair of the foreign affairs committee, backed Starmer’s decision, calling it “right” because there was no plan, it wasn’t in Britain’s interest, and it wasn’t legal. She noted it was “very, very unusual for a British prime minister to say no to an American president,” with the last instance being Harold Wilson.
The diplomatic friction has led Liberal Democrat leader Ed Davey to call for King Charles’s planned state visit to the US in April to be cancelled, stating it would be “wrong” to put the monarch in an “embarrassing situation” with a president who “repeatedly insults and damages our country.”
On the military front, Downing Street has played down speculation that the aircraft carrier HMS Prince of Wales is being readied for deployment to the Middle East. The Prime Minister’s official spokesperson said the carrier “has always been on very high readiness” and while preparedness is being increased, “no decision [has been] taken to deploy her.” The government has already dispatched extra fighter jets and the warship HMS Dragon to the region following drone attacks on UK bases.
Political Crosscurrents
Reform UK leader Nigel Farage has positioned himself as a staunch critic of the government’s stance, supporting regime change in Iran and calling Starmer’s “inaction” “frankly pathetic.” This view is at odds with much of the British public, with YouGov polling indicating only 29% support the joint US-Israeli strikes. Farage, a vocal proponent of the “special relationship,” reportedly did not meet Donald Trump during a recent trip to Mar-a-Lago, despite suggestions he expected to.
Farage has also strengthened his ties to the cryptocurrency sector, investing £215,000 in Stack BTC, a firm chaired by former Conservative chancellor Kwasi Kwarteng. His party, which has received £12m in donations from crypto billionaire Christopher Harborne, was the first major UK party to accept cryptocurrency donations. Farage has previously advocated for allowing taxes to be paid in crypto and creating a digital currency sovereign wealth fund.
As finance ministers from the G7 nations hold urgent talks on the crisis, the UK government is navigating a complex web of economic peril, domestic rebellion, and strained alliances, with the Prime Minister’s warning of a gathering economic storm beginning to materialise at the fuel pump and on the financial markets.
