LONDON (AP) — Britain’s Treasury chief Rachel Reeves sought Tuesday to present a rosy picture of the state of the U.K. economy even as oil and gas prices soared in the wake of the fast-evolving Iran war that has cast a pall over the global economic outlook.
Unveiling the latest U.K. economic forecasts compiled by the independent Office for Budget Responsibility, Reeves insisted the plan she has been driving forward since the Labour Party returned to power in the 2024 election is bearing fruit.
Though economic growth this year is expected to be slightly lower than predicted at the time of last November’s budget at 1.1%, it’s set to be higher than anticipated in both 2027 and 2028 at 1.6%. Inflation and borrowing are expected to fall more quickly than previously thought, she added.
“The forecasts today confirm that the choices this government has made are the right ones,” she said.
Reeves had hoped her statement to the House of Commons would be a relatively low-key affair, but economists are warning that the Iran war could upend the forecasts, depressing growth, stoking inflation and increasing debt.
Perhaps most significantly, the price of Brent international oil standard has spiked by more than 15% this week to over $80 a barrel, while global gas prices, which the U.K. is particularly reliant on, have nearly doubled. If sustained, both would certainly lead to higher energy bills for businesses and households, fuelling inflation and keeping a lid on growth.
Reeves started off her speech by acknowledging that the world has become “yet more uncertain” in the past few days following the decision of the United States and Israel to launch strikes against Iran, which saw the death of Supreme Leader Ayatollah Ali Khamenei as well as other members of Iran’s leadership.
“It is incumbent on me and on this government to chart a course through that uncertainty, to secure our economy against shocks, and protect families from the turbulence that we see beyond our borders,” she said.
Britain’s Labour government, which has lost significant support since it won the general election in 2024, has been hoping that 2026 would be the year that it was clear the British economy was on a sounder footing than it has been for years.
Some recent economic indicators have pointed to a pickup in growth in the early part of 2026. Inflation is also set to fall sharply in the coming months, prompting the Bank of England to cut interest rates further. Last month, the bank kept its main rate unchanged at 3.75%.
