Reeves warns oil price shock to fuel higher inflation for Brits
Chancellor Rachel Reeves has warned that a recent spike in oil prices will translate into higher inflation in the UK, with her economic approach centring on calls for the US, Israel and Iran to de-escalate the conflict in the Middle East.
In a statement to MPs, Reeves said she called on G7 finance minister, which includes the US administration’s Scott Bessent, for “immediate de-escalation” of the conflict and that she wanted to see vessels safely pass through the Strait of Hormuz after days of disruption.
However, she appeared to admit that UK businesses and consumers would not be protected from the knock-on effects of disruption in global oil trade and production across the Middle East.
“This conflict affects us all,” Reeves said.
“The economic impact of the situation in the Middle East will depend on its severity and duration.”
“It is likely to put upward pressure on inflation in the coming months.”
Reeves’ statement in the House of Commons followed a meeting with executives from the International Energy Agency and G7 ministers, who agreed to hold off using oil reserves to lessen the blow of an oil price surge.
The Chancellor said the UK “stands ready” to allow reserves to be used but the government’s message focused on calls for a “rapid de-escalation”.
She also said the country would support the security of vessels passing through the Strait of Hormuz, which has around a fifth of global oil trade pass through it each year.
In another revelation, it was confirmed that the Ministry of Defence was using the Treasury’s rainy day funds to pay for defensive operations in the region. She later declined to reveal the exact amount that was taken.
Reeves defends Labour’s energy stance
Most of the statement focused on a defence of government policies on net zero and action to strip subsidy costs from energy bills.
For example, the Chancellor defended the government’s controversial refusal to allow North Sea giants to drill for more oil and gas.
She refused to say whether the government would accept all recommendations in the John Fingleton review on nuclear power regulation though a full answer is set to be provided this week.
Sir Keir Starmer previously promised all recommendations in the review would be accepted.
Reeves also warned businesses that the government was ready to work with regulators to ensure pricing rules are followed across the private sector.
“I will not tolerate any company exploiting the current crisis to make excess profits at consumers’ expense.”
Shadow chancellor Sir Mel Stride attacked Reeves over “ruinously-high taxes” and her rejection of calls for the fuel duty to axe the 5p fuel duty.
The tax is scheduled to rise later this year after several extensions in freezes, the first coming in the aftermath of Russia’s full-scale invasion of Ukraine.