The British government is preparing to hold an emergency meeting, today, Monday, headed by Prime Minister Keir Starmer, to discuss the potential economic repercussions of the war in Iran, amid growing fears of a new wave of unrest that may hit global markets and directly affect the internal situation in Britain.
The Minister of the Exchequer, Rachel Reeves, and the Governor of the Bank of England, Andrew Bailey, will participate in the meeting, in addition to the ministers concerned with the interior and energy files, as part of a meeting of the government emergency committee “Cobra” with the aim of assessing the extent of the risks and discussing ways to deal with them.
This British move comes in light of mounting anxiety in the markets, after Iran threatened to target energy facilities and water desalination plants in the Gulf region if US President Donald Trump carries out his threat to strike the Iranian electricity grid, which threatens to cause a new shock in oil and gas prices.
London is monitoring developments with great caution, especially since the British economy appears more vulnerable to any turmoil in the energy market, due to the heavy reliance on gas imports, continued inflationary pressures, in addition to the weakness of the general financial situation.
The British Treasury explained that the meeting will discuss the impact of the crisis on families and companies, energy security, the ability of industry and supply chains to withstand, in addition to aspects related to the international response.
In this context, Rachel Reeves stated that it is still too early to determine the full impact of the war on the British economy, and she rejected at the present time calls to launch a broad support package to confront the rising costs of living, noting that the government is instead considering taking more focused measures.
However, fears are growing that the current energy shock will lead to the return of inflation in Britain to high levels, as economic estimates indicate that it may reach about 5 percent later this year, which could deal a new blow to an economy already suffering from weak growth.
Also, the continued rise in oil and gas prices may hamper the government’s plan to reform the general financial situation, and subsequently push it to make difficult choices, including imposing additional tax increases if it is forced to expand support programs.
Last week, the government announced a package worth 53 million pounds to help homes that depend on heating oil, but this measure did not allay investors’ fears, but rather increased demands for broader steps.
This was clearly reflected in the bond market, where the ten-year cost of government borrowing rose on Friday to more than 5 percent, a level not seen since the global financial crisis nearly two decades ago.
Market movements also showed a clear shift in investor expectations, after expectations tended to lower interest rates, before changing quickly towards the possibility of raising them if inflationary pressures continued.
Although the Bank of England confirmed last week its readiness to act to ensure that inflation returns to its 2 percent target, Governor Andrew Bailey considered that it was still too early to decide on the need to increase interest rates.
In conclusion, Britain is entering a delicate economic phase, as the Iran war has become a new pressure factor on a government already facing the challenges of inflation, debt, and slow growth, while the markets appear to be waiting to see whether London will be content with observing or will soon be forced into broader intervention. (toss)
