“War in Iran will come at a cost,” Reeves warns UK businesses

Rachel Reeves has warned the escalating conflict in Iran will feed directly into higher costs for British businesses, as pressure builds on energy prices and inflation.

“I am going to be straight with people”, Reeves said, “the war in Iran will come at a cost to British families and business,” signalling that the economic fallout is already being felt across the UK economy.

Her intervention comes as global markets remain on edge following disruption to the Strait of Hormuz, a critical artery for around a fifth of the world’s oil, and the collapse of fresh US-Iran talks led by JD Vance.

For UK plc, the immediate concern is energy. Gas prices have surged amid the partial closure of the strait, feeding through to higher operating costs for manufacturers and raising the prospect of another inflationary shock just as price pressures had begun to ease.

Reeves acknowledged the strain on firms, warning that rising energy costs are “not only felt by households… they are felt by business too, including the UK’s manufacturing sector that has faced uncompetitive energy prices for too long.”

Inflation shock looms for UK economy

Economists are already revising forecasts, with some estimates suggesting inflation could climb back towards four per cent this year, driven largely by energy cost – a sharp reversal from earlier expectations of a return to stability.

That creates a fresh headache for the Treasury, as public sector pay demands are rising, with unions arguing that existing settlements are based on outdated forecasts from before the conflict.

Any move to increase pay awards risks adding billions to government spending at a time Reeves has already warned of a “challenging fiscal environment”.

At the same time, the wider global outlook is deteriorating, with the International Monetary Fund chief Kristalina Georgieva warning the war will leave “scarring effects” on the global economy, with lower growth, higher inflation and disruptions to trade flows across the Middle East.

Reeves said the government’s priority is to stabilise global supply routes, including reopening the Strait of Hormuz, as part of efforts to limit further economic damage.

“We don’t yet know the full scale of those costs, but the immediate priority must be to ensure that the ceasefire holds,” she said.

“But I know rising prices are being felt now. So, we are taking action to keep costs down for families and provide support for those who need it most.”