London stock market meltdown continues
Rachel Reeves has not managed to stem the losses on the London stock market today.
Rising alarm about the Middle East crisis has triggered a slump in stock prices, which is worsening through the afternoon.
The FTSE 100 index of blue-chip shares is now down a painful 3.7% at 10,417 points, its lowest level since 13 February, and a loss of 363 points.
Nearly each of the hundred stocks on the index are down, with British Airlines’ parent company IAG down 8% today, and mining stocks and banks also notably weaker.
The New Economics Foundation argue that the govenment may need to provide help with energy bills, if the UK suffers a price shock from surging oil and gas costs.
George Bangham, head of social policy at NEF, says:
“If the Iran war leads to an energy price shock in Britain, households and businesses won’t be able to afford the pain and the Treasury will have to step in to help.
“The government should immediately prioritise building a better crisis infrastructure for energy costs, that at the very least supports the most vulnerable households with big rises in energy bills.
“Ideally, the government should pass emergency legislation that lets it join together different databases across the Department for Work and Pensions, HMRC and Ofgem, so it can target support towards the households facing the highest bills and whose incomes most restrict their ability to pay them.
“In the medium term, this is all the more reason why we need to reduce our dependency on international fossil fuel markets.”
OBR: UK not facing a 1974-style hyper-inflation shock
The OBR are now fielding questions from reporters.
ITV’s Joel Hills asks: If energy prices stay at their current levels, when do they start to have a material impact on growth and living standards?
The OBR’s David Miles warns that higher energy prices will affect the economy over “different time horizons”.
The price of petrol and diesel might change in months, or even weeks.
But household bills would take longer to change, as they are regulated through the quarterly price cap.
Miles says there’s a ‘rule of thumb’ that a 10%, persistent, increase in energy costs would add between a quarter and a half of a percent on prices.
Spot prices for energy are up around 20% since the Iran war started, Miles adds, which implies a rise of between half a point and 1 percentage point on inflation.
But he insists we’re “not looking at hyper-inflation”,
This is not 1974 in the UK.
[UK inflation hit 17% in 1974, after the oil price shock].
The National Institute of Economic and Social Research also fear that the Middle East crisis could disrupt the UK’s fiscal outlook.
David Aikman, NIESR director, says:
“The improved borrowing position announced in today’s Spring Statement has been overshadowed by the Middle East crisis.
The market has repriced sharply since yesterday: 2-year gilt yields have risen from 3.5% to 3.9%, while Brent crude now stands at $80 a barrel, some 18% above the OBR’s forecast assumption.
This reflects a significantly reduced likelihood of a Bank of England Spring rate cut.
If the crisis persists, higher energy prices will feed through to inflation, increasing borrowing costs further, putting serious pressure on the fiscal outlook.”
IFS: UK public finances are vulnerable
Hats off to the Institute for Fiscal Studies, who have rattled out their initial reaction to the spring statement.
Helen Miller, director of the IFS, says what is newsworthy is not the change in the forecasts since November but the forecast itself.
The main fiscal story remains the same. The UK’s public finances are vulnerable. Debt is high, and set to only just stabilise as a fraction of GDP by the end of the decade. Borrowing also remains high.
The government plans to bring it down rather rapidly, from 4.3% of GDP in 2025–26, to 3.6% in 2026–27, and 1.8% by 2029–30, at which point all borrowing is intended to be for investment only and for debt to be stable.
The big question – which remains as central as ever after today’s statement – is whether those plans can be delivered.
OBR: Iran conflict could have 'very significant' impact on UK economy
Here’s a grim chart from the OBR, showing how growth in GDP per person has been much weaker than if it had followed its rate before the financial crisis.
The OBR’s David Miles tells reporters:
Right now, the level of GDP per person in the UK is around about 30% below where it would have been had there not been a profoundly different trajectory for productivity in the period since the financial crisis.
It is not surprising on the back of that that the fiscal situation in the UK remains very challenging.
And of course, such forecasts could already be out of date due to the market turbulence this week.
As the OBR explain:
Conflict in the Middle East, which escalated as we were finalising this document, could have very significant impacts on the global and UK economies.
The outlook for inflation is “particularly uncertain” given recent events, says the OBR’s David Miles.
He says that the OBR’s central forecast had been that inflation fell back to the UK’s 2% target this year, adding “there must be more uncertainty about that now”.
The Office for Budget Responsibility are holding a press conference now to discuss their new spring forecasts.
David Miles, who has been jointly leading the OBR since Richard Hughes resigned after its previous economic outlook was published early online, speaks first.
Miles says the military action in Iran and across the Middle East in recent days illustrate how quickly the economic environment can change.
He confirms that the OBR’s central forecast hasn’t been updated to reflect events in the last 48 hours, which he says llustrate how quickly the economic environment can change.
Miles points out that the surge in gilt yields this week take them back to their levels when the OBR was drawing up its forecasts.
One thing that hasn’t changed very much in the last few days, and indeed in the last several months, is that the “government faces a situation which is very challenging fiscally”, Miles points out, showing a chart showing the UK’s high borrowing and debt levels.
Today’s spring forecasts was “largely a non-event”, with no big fireworks, says Sanjay Raja, chief UK economist at Deutsche Bank:
First, you could just about count on one hand how many policy measures were delivered as part of the Spring Statement. After delivering 75 policy measures in the autumn, Chancellor Reeves stuck to her commitment to avoid any new major policy measures. In total, spending decisions taken in the Spring Statement were projected to add up to £6bn in borrowing by 2030/31*.
Second, the borrowing outlook is marginally better than in the autumn. Changes in receipts are expected to outperform changes in spending. As a result, borrowing is expected to track lower over every single year of the forecast horizon beyond 2026/27 (compared to the Autumn Budget), driven primarily by lower net debt interest payments and non-interest receipts. In even better news, public sector net debt is expected to be around £22bn lower per year across the OBR’s five-year forecast horizon.
Third, as expected, the Chancellor raised her fiscal headroom. On her primary headroom, the Chancellor raised her fiscal buffer to £23.6bn in 2029/30. On her secondary rule, the Chancellor’s headroom picked up to just over £27bn.
Fourth, the gilt remit – while lower this fiscal year and next, the gilt remit was a little higher than markets expected, with the contribution of T-bills cut and conservative assumptions used in estimating any financing adjustment from the current fiscal year. While the market may be disappointed today, we suspect further revisions next month will be supportive for gilts.
Finally, recent events will undoubtedly weigh on the economy and the fiscal outlook. Based on current market conditions, higher inflation and weaker spending would dominate near-term projections, leaving the Chancellor with £5bn less in headroom. Calls for support on energy prices will only increase from here, alongside calls to ramp up defence spending. Tight spending envelopes will also be called into question. While the Chancellor may have built up a little bit more of a buffer over the last two fiscal events, pressure to spend some of her fiscal space will likely come to a head in the Autumn Budget.
* – those spending decisions include the additional funding for special educational needs announced last month
Updated
Rachel Reeves isn’t getting any plaudits from the bond market today.
Normally, the news that borrowing is forecast to fall slightly faster than expected in November might have pushed down borrowing costs.
Instead, there’s a bonfire raging in the bond market today, as the Iran conflict and soaring energy prices are spooking investors.
UK bond prices are tumbling, pushing up the yield (interest rate) on 10-year gilts by almost 16 basis points (0.16 percentage points), a very sharp move.
Two-year gilt yields (which track interest rate expectations) are also up 16bps, to 3.79%.
Parts of the OBR’s latest Economic and fiscal outlook will make a reader nostalgic for the time before the Iran war broke out.
In the executive summary for today’s forecast, the watchdog says:
Market expectations for gas prices have fallen by 15 per cent on average over the forecast since November.
Market participants expect Bank Rate to fall from 3.75 per cent to 3.3 per cent by late 2026, which is marginally lower in the near term than in November. Bank Rate is then expected to rise to 4.0 per cent by the end of 2030.
UNFORTUNATELY, gas prices have pretty much doubled since the conflict broke out, while Bank Rate is only expected to drop to 3.5% by the end of this year.
Downgraded growth forecasts and rising unemployment rates 'not a good headline for government'
Blick Rothenberg, the audit, tax and business advisory firm, says today’s downgraded growth forecasts and higher predicted unemployment rates are “not a good headline for government”
Simon Gleeson, a partner at the firm, said:
“Ultimately growth forecasts have been downgraded, and unemployment rates confirmed to continue to rise is not a good headline for any government.
The Chancellor chose to instead double-down on how her plan was right instead acknowledging it and talking to opportunities for growth.
[Reminder: growth this year is only expected to be 1.1%, down from 1.4% before, before a pick-up from 2027 – see earlier post].
Former chancellor Jeremy Hunt has told Reeves that her promise to cut £150 off energy bills in April will “ring hollow” with many people, given gas prices have surged this week.
Hunt also suggests that it is a mistake to have raised taxes by £66bn at the last two budgets. Couldn’t money for public services be raised by reducing the welfare bill instead?
Reeves pummels Hunt – accusing him of leaving a massive black hole in the public finances, adding it is “a bit rich” for the Conservatives to say we should bring welfare spending down when they presided over a huge increase in welfare spending.
Back in parliament, shadow chancellor Mel Stride has told the chancellor that she has delivered “a surrender statement” not a spring statement.
Stride accuses Rachel Reeves of turning up today “with no plan”, suggesting it may be a cunning way to avoid further u-turns.
And he compares the chancellor to a “dodgy estate agent” standing in a crumbling building without a roof, windows, or a floor, saying “just think of the potential”.
Not the worst line in the world – but cheeky, given the Conservatives were in charge of the house for 14 years before Reeves moved in…..
The Office for Budget Responsibility has also trimmed its inflation forecast this year – however, this was drawn up before the Iran war, so is already out of date.
The OBR now predicts CPI inflation will drop to 2.3% in 2026, down from the 2.5% it forecast in November.
The fiscal watchdog still expected inflation to run at 2% per year from 2027, as before.
It says:
A loosening labour market and falling energy and food price inflation contribute to inflation reaching its 2 per cent target in late 2026.
Updated
Chart: UK unemployment to peak higher
UK unemployment to peak at 5.3%, higher than feared, this year
Ouch! The Office for Budget Responsibility has raised its forecast for unemployment, quite significantly.
The OBR new central forecast is that the unemployment rate rises from 4.75% in 2025 to a peak of 5.3% in 2026.
Back in November, unemployment had been expected to hit 4.9%, so this is quite a downgrade.
It has also raised its forecast for unemployment in 2027 to 4.9%, from 4.6% before.
The OBR says:
Labour market weakness still appears to be driven primarily by entrants into the labour force struggling to find work amid subdued hiring demand. We expect this weak demand to continue in the near term as output falls further below the economy’s supply potential.
Looking further ahead, the OBR expects the unemployment rate to fall gradually to 4.1% by 2030/.
Updated
OBR: Interim forecast is 'little changed' from November.
The Office for Budget Responsibilities new spring forecasts are now out!
The OBR says:
Government debt as a share of GDP has nearly tripled over two decades, borrowing has remained around 5 per cent of GDP for the past four years, and borrowing costs are among the highest of advanced economies.
Against this challenging backdrop this interim forecast update is little changed from November. GDP growth averages 1½ per cent from next year and borrowing falls to around 1½ per cent of GDP in 2030-31, which would stabilise debt around 95 per cent of GDP.
Significant risks, including from conflict in the Middle East, mean outcomes both substantially above and below this forecast are possible.
[that last sentence is an acknowledgement that the world has changed since the OBR finalised its forecasts on 25 February.].
Updated
Shadow chancellor Mel Stride is now responding, accusing the chancellor of “complacency”.
Stride accuses Reeves of destroying growth by putting up taxes, dubbing her a “fiscal twister”.
Stride also suggests Reeves was “slightly coy” about the latest forecasts for unemployment, pointing out that joblessness is already at a five-year high.
Reeves concluded her statement by repeating her claim that her plan is “the right one”.
And warning against a change of course, she says the UK must return “a return to austerity”.
We must reject the temptation of easy answers and reckless borrowing to protect family finances and get the cost of living down, and we must reject the political instability which would put at risk all the progress that we have made.
At one stage in her speech, Reeves appeared to channel the UK’s newest MP, Hannah Spencer.
The chancellor told the Commons she believed in a government that stands up for working people, that everyone, no matter where they grow up, deserves security and a fair chance to achieve their potential.
Reeves added:
And that being able to manage the bills, afford a home and pay for a holiday is never too much to ask.
Updated
Reeves also revealed that GDP per person is set to grow more than was expected in the autumn, with growth of 5.6% expected over the course of this parliament.
GDP per person, or per capita, is a measure of living standards – it fell in the second half of last year.
Reeves: borrowing down, headroom up.
On borrowing, Reeves says the UK is set to borrow less than the G7 average, something that the Tories never achieved in any year in 14 years.
[Those 14 years included the austerity years, and the cost of the Covid-19 pandemic].
Today’s forecasts show that public sector net borrowing is set to fall from 4.3% of GDP this year to 3.6% next year, then to 2.9%, 2.5% and to 1.8% in the 2029-30 financial year, she explains.
The chancellor then reveals that her headroom against the stability rule in 2029-30 has increased from £21.7bn to £23.6bn.
Headroom against the investment rule is also higher at £27.1bn.
That means she’s still sticking to her goal of sticking to the fiscal rules. In normal times, that would reassure the financial markets…..
Debt is now set to be lower in every year of the forecast compared with the autumn, she adds.
Updated
No Labour party speech is complete without a pop at “Liz Truss’s disastrous mini budget”, which crashed the pound three and a half years ago.
Reeves says that 2022 fiscal event was cheered on by the leader of the opposition and by “the honorable member for Clacton” (Nigel Farage), who she calls out for not being present.
Rachel Reeves then pokes the “failed economic dogmas of the past”, such as the “trickle down, trickle out thinking” that she says has produced diminishing returns for working people.
Reeves then explains that she will outline three major choices for the UK economy in two weeks time when she delivers the Mais Lecture in London.
Those choices, she says, are:
To go further in strengthening global relationships, break down trade barriers and deepen alliances with European partners
To go further in backing innovation and harnessing the power of AI.
And to go further in transforming our economic geography so that we can build growth on a broad and stable basis, spread opportunity and unlock opportunity across the country.
Reeves: We can beat the forecasts again
In what may be a hostage to fortune, the chancellor declares that “in the face of global uncertainty, we beat the forecasts last year.”
Reeves insists she has confidence that the government can beat forecasts again, as more of the choices made by the government will come into effect.
She cites discounts on energy costs, trade deals with India, the US and the EU, and reforms to back entrepreneurs, investment in infrastructure and skills, funding for further education and more planning reforms.
In today’s forecasts, unemployment is set to peak later this year and then fall in every year of the forecast period, Reeves says.
UK growth for 2026 cut, but faster growth ahead
Onto growth, and Reeves says the OBR has “adjusted the profile of GDP” so that it grows slightly slower in 2026 and then faster in both 2027 and 2028.
Here are the new forecasts:
2026: growth of 1.1%, down from 1.4% growth forecast in November
2027: growth of 1.6%, up from 1.5% growth forecast in November
2028: growth of 1.6%, up from 1.5% growth forecast in November
2029: growth of 1.5%, as forecast in November
2030: growth of 1.5%
Updated
Reeves: Inflation expected to fall faster than forecast (except....)
The office for Budget Responsibility expect inflation to come down even faster than it forecast in the autumn, Reeves says.
[Except, these forecasts presumably don’t account for the surge in energy prices this week?].
Reeves reminds MPs that she is cutting energy bills by £150 in April (as announced last year).
In the current global context, with the risk that rising energy prices will put upward pressure on inflation, the action that I have taken is even more crucial to keeping inflation low and stable, and the best way to support family incomes and reduce pressures on the cost of living.
Reeves reminds MPs that there have been six cuts to UK interest rates since the last general election.
[True, but the chances of a 7th soon have tumbled today].
Turning to the OBR’s new forecasts, Reeves says they show that the government’s plan is the right one.
She insists:
Inflation is down, borrowing is down, living standards are up and the economy is growing.
She then criticises the previous government for letting inflation to skyrocket over 11% (after the Ukraine war drove up the cost of living), saying the last parliament was the first one where people were poorer at the end than the beginning.
Updated
Reeves: in regular contact with Bank of England governor
Reeves then reassures MPs that she is in “regular contact” with the governor of the Bank of England, with her international counterparts, and with key sectors who are affected by the Middle East crisis – including the maritime sector.
The chancellor adds that she will meet with North Sea industry leaders tomorrow, to discuss the implications that they face and work with them to manage this uncertain period.
Updated
Reeves: Economic plan is "even more important" given Middle East crisis
Rachel Reeves begins by telling MPs that the government has “the right economic plan for the country”, triggering a outburst of noise in the Commons.
The chancellor says this plan is “even more important” in a world that has become “yet more uncertain” in the last few days.
Given the unfolding conflict in Iran and the Middle East, Reeves says it is “incumbent on me” to chart a course through that uncertainty, secure the economy against shocks and protect families from the turbulence beyond our borders.
Reeves begins statement on spring forecast
Chancellor Rachel Reeves is now delivering her response to the UK’s spring forecast in parliament, updating MPs on the state of the economy.
This forecast, produced by the Office for Budget Responsibility, will show the latest outlook for growth, inflation and unemployment.
They should also let economists judge whether the UK is on track to hit the chancellor’s fiscal rules.
However, the Middle East crisis – and the surge in oil and gas prices this week – mean such forecasts are probably already out of date even before they’re published (once the chancellor finishes speaking).
Today was meant to be a non-event, as the government has committed to holding just one major fiscal event each year in the autumn; we’re not expecting any major policy changes….
Reeves is giving statement with a backdrop of tumbling financial markets. The UK’s FTSE 100 share index is currently down 2.5%, on track for its worst day since Donald Trump launched his trade war last April.
And disappointingly for the chancellor, the City has slashed its bets on an interest rate cut this month – it’s now just a 22% chance…..
Updated
Rachel Reeves, and Sir Keir Starmer, have taken their seats in the House of Commons now, where Foreign Office questions are taking place.
Our Politics Live blog has all the key developments:
Rachel Reeves has now left 11 Downing Street to head to parliament, to deliver her response to the OBR’s Spring Economic Forecast (which will be published after she speaks).
We’re not expecting the chancellor to produce any rabbits today, when she responds to the OBR’s economic forecasts.
But a fox has been sighted – running past the 10 Downing Street door before Rachel Reeves headed to parliament to deliver her response to the spring forecasts.
Airline stocks are falling sharply again, as the travel industry tries to adjust to the shutdown of Gulf airspace.
British Airways’ parent company, IAG, are down 6.8% today, while Air France has lost 6.9% and Lufthansa has dropped by 4.4%.
Low-cost airlines are under pressure too; Wizz Air is down 5.5% while Ryanair has lost 2.9%.
The unprecedented disruption to all three major hubs in the Middle East - Dubai, Abu Dhabi and Doha – has created massive disruption for passengers:
Chris Beauchamp, chief market analyst at IG, says:
“The widening war in the Middle East continues to be a catastrophe for the international flag carriers, whose key business routes to the Middle East are now all but off limits until the conflict winds down.
Budget airlines have been less affected for the moment, but with the spectre of inflation rising once more consumers are going to start worrying about holiday spending in coming months.
If the conflict ends in a reasonable time frame then the hit to share prices will be temporary, but if damage to oil infrastructure intensifies and prices go much further then it will take much more time before earnings recover.”
Business secretary Peter Kyle has asked all businesses who have operations in the middle east to register their staff with the local embassies.
He told a conference of manufacturing interests in London on Tuesday that the government would be partnering with Make UK, the trade organisation, “in the coming days” to help navigate the current conflict.
Kyle told the Make UK conference:
“My department is working across government to ensure that you get the right guidance and the right tools...
We also want to manage any disruption and trade in the region and also supply chains across the region and back here my department is working flat out on doing this”.
Brent crude oil at 18-month high
The oil price is now trading at its highest level in 18 months.
Brent crude has climbed by over 7% this morning, to a high of $83.47 a barrel, adding to Monday’s 7.2% rise.
That’s its highest level since July 2024.
The primary impact of the conflict in the Middle East is being felt in energy markets, points out Patrick Farrell, group chief investment officer at wealth manager Charles Stanley, adding:
Attention has also turned to the Strait of Hormuz – a critical maritime chokepoint through which 20%–30% of global oil and liquefied natural gas (LNG) shipments pass. While Iran has not formally closed the waterway, vessels have reported warnings from Iranian forces, and several tanker operators have temporarily paused shipments as a precaution. These developments naturally raise questions about global energy prices, inflation, and market volatility.
Wall Street is set for losses when trading begins in three and a half hours.
The futures market is signaling that the S&P 500 share index could be down 1.75%, with the Dow Jones industrial average on track for a 1.66% drop.
Foreign companies bought up £27.4bn worth of UK companies in the final quarter of 2025, the largest amount in four years, according to the Office for National Statistics.
UK firms have become an attractive target for foreign investors who are capitalising on cheap valuations, amid a wider uptick in global dealmaking.
The ONS said the £27.4bn figure was the highest since the second quarter of 2021 and £19.8bn more than the previous quarter, due to the number of deals worth more than £1bn.
The total was 16 times bigger than the £1.7bn of outward deals - British firms buying foreign businesses - that occurred over the same period. The value of domestic mergers and acquisitions (M&A), in which UK companies acquire other domestic firms, was also low at £1.8bn in the final quarter of 2025, some £5.3bn less than the previous quarter.
The ONS said a notable foreign acquisition of a UK company was the US firm Doordash buying Deliveroo for £2.9bn.
Others big deals have included the British industrial group Spectris being bought for £4.8bn by the US private equity group KKR and the professional services company JTC being acquired by the private equity firm Permira for £2.7bn.
While the value of foreign takeovers increased, the total number of M&A deals fell slightly, reaching 444 in the final quarter of 2025, down 53 from the previous year.
The BBC’s economics editor, Faisal Islam, points out that the gas price is now much higher than the OBR assumed in its new forecasts, to be released in less than three hours.
That could be ‘problematic’ for July’s energy price cap – the next time that the cap on UK energy bills will be set.
Not great.
— Faisal Islam (@faisalislam) March 3, 2026
The UK gas price has gone up another 40% this morning… the per thermal price is now 150p… which does get to the sustained painful levels though not the actual peak seen in Russia- Ukraine crisis.
For reference the OBR assumption at the moment likely to be confirmed… pic.twitter.com/D98I1VSRF6
Updated
The pan-European Stoxx 600 share index is continuing to slide, down 3% today.
London stock markets hitting new lows
The rout in London’s stock market is turning into quite a slump.
The FTSE 100 share index has now lost 303 points, or 2.8% of its value, to 10,475 points – well away from last week’s record high of 10,934 points.
Airlines, such as IAG (-6%) and easyJet (-5.1%), are among the top fallers, hit by higher oil prices and disruption to flights in the Middle East.
The smaller FTSE 250 index, which tracks medium-sized companies, has lost 2.9% this morning.
Overall, London is firmly on track for its worst day since last April, when Trump’s trade war spooked markets.
Updated
Petrol retailers urge Reeves to abandon fuel duty increases
Petrol retailers are warning that prices at the pumps will have to rise, due to the jump in crude oil prices.
Gordon Balmer, executive director of the Petrol Retailers Association, says:
“The conflict in the Middle East has increased the wholesale cost of petrol and diesel, which will mean pump prices will have to go up. Rising fuel prices hurt the economy in the form of higher inflation, impacting already hard-pressed household budgets.
To help motorists and businesses, I am today writing to the Chancellor urging her to abandon the planned fuel duty increases.”
Rachel Reeves announced last year that the long-held discount in fuel duty would be scrapped from September. Prices are set to rise by 1p a litre, followed by two increases of 2p each in subsequent years.
Cancelling that rise would leave the chancellor with a shortfall in her revenue forecasts, and I imagine she would rather wait until nearer the autumn to weigh up the situation….
Ireland’s Taoiseach has said there is “no excuse for prices going up at the pumps yesterday” because Irish oil “is coming from the North Sea and we don’t want any price gouging going on”, PA Media report.
“We don’t want anyone taking unfair advantage of consumers and people because of this right now,” Micheal Martin said.
The Irish premier was speaking to the press before his cabinet met on Tuesday when he was asked about reported increases in petrol and home heating oil costs.
Martin added:
“In relation to this, we met the competition and consumer authority yesterday and we have asked them to examine the industry and the sector, in terms of any unfair pricing practices.”
Spring forecasts: What's expected
The crisis in the Middle East, and the turmoil in the financial markets, means the UK’s new spring forecast, and Rachel Reeves’s statement at lunchtime, may get less attention than normal.
That might not displease the Treasury – they’ve already been hints that today will be a relative non-event, with no plans for any surprise policy changes.
David Aikman, director of NIESR (The National Institute of Economic and Social Research) points out that the economic background is “mixed”:
“Today’s Spring Statement lands against a mixed economic backdrop: inflation has fallen and government borrowing costs have eased, but unemployment has risen and the growth outlook has weakened.
The immediate risk is a renewed energy shock. The conflict in Iran has pushed up oil and gas prices and disrupted shipping routes. If it persists, it will raise household bills and business costs in the months ahead, putting renewed upward pressure on inflation – and potentially interest rates.
That uncertainty underlines why fiscal policy needs further consolidation: with debt still unsustainably high, the priority for the Chancellor should be to build a credible medium-term plan to put the public finances on a more resilient path, with debt falling as a share of the economy over time.”
Rupert Thompson, chief economist at asset manager IBOSS Chief Economist, says the forecasts could be the least important development today!
The OBR will put out a new set of economic forecasts which should see the fiscal headroom little changed.
With no real pressure this time – unlike in the last two budgets – to raise revenue, Rachel Reeves should stick to her longstanding intention of only one major budget a year and keep any policy changes to a minimum.
Kathleen Brooks, research director at XTB, agrees that the spring forecasts will be overshadowed by events in Middle East, adding:
There could be some good news on the public finances, with borrowing for this fiscal year expected to be slashed by 20%. The bond market has benefitted from this in recent weeks, and in February, Gilts were the top performing global sovereign bond.
A subdued growth outlook is also expected, and the OBR may sound a warning on the unemployment rate. A rapid increase in unemployment could hurt the UK’s fiscal outlook and the amount of available headroom if it limits tax receipts and also increases the bill for unemployment benefits.
European forward power contracts are rising this morning too, tracking the jump in oil and gas prices.
Reuters has the details:
The German year-ahead baseload contract was up 5.6% at €85 ($98.80) per megawatt hour at 0858 GMT, while the equivalent French price rose by 3.5% to €54/MWh.
On the spot side, contracts rose on an expected drop in wind power supplies.
The German day-ahead baseload power contract rose 26.3% to €131.75/MWh, LSEG data showed.
The equivalent French contract was up 10.3% at €64/MWh.
German wind power output is expected to fall by 4.8 gigawatts on Wednesday to 5.1 GW, while French wind power generation is projected to rise by 1.6 GW to 4.6 GW, LSEG data showed.
UK gas prices hit three year high
UK gas prices have hit a three-year high this morning, driven up by fears of shortages due to the Middle East conflict.
The month-ahead UK gas price has jumped by 30% today, to 148p a therm, adding to its 44% surge yesterday – and almost double its levels last week.
Yesterday’s news that QatarEnergy has halted LNG production at military attacks on two operational facilities has created uncertainty over how long gas exports will be disrupted.
Jess Ralston, head of energy at the Energy and Climate Intelligence Unit (ECIU) says this shows the importance of cutting reliance on gas:
The Energy Crisis Commission warned that the UK remained dangerously underprepared for another energy crisis. Nobody knows exactly how the next few weeks will play out, but with homes and businesses still facing the debt and after-effects of the last gas crisis, people will understandably be concerned.
“So much focus is put on drilling in the North Sea, but when you actually look at the regulator’s official numbers you realise more drilling makes a difference of a few percentage points; it’s a red herring. If you truly want the energy used in Britain to come from Britain, the fact is the only way to do that is to reduce demand for gas, given the North Sea is on the decline, has been for years and that will continue even if new drilling happens.
“This means replacing gas boilers with electric heat pumps running on British renewables that can be built relatively quickly. If you don’t, you may end up with gas boilers running increasingly on Qatari gas, which currently can’t get out of the Strait of Hormuz, and the price of all gas is dictated by international markets.
“Fortunately, any looming crisis is unlikely to hit electricity bills quite as hard because more renewables have been linked up to the grid meaning we don’t have to run gas power stations as much. Last year renewables cut the wholesale price of electricity by a third.”
UK bond yields jump as investors anticipate inflation spike
Government bond prices are slumping today, as investors anticipate an inflationary shock from the Middle East crisis that will make it harder to cut interest rates.
UK bonds are under pressure, driving down prices which lifts the yield, or interest rates, on the debt.
The yield on 10-year UK bonds has jumped by 11 basis points (0.11 percentage points), with 30-year yields up 9bps.
Shorter-dated bonds are suffering too, pushing up the yield on two-year bonds by 13.5bps now.
This follows today’s jump in oil and gas prices, which threaten to push up inflation.
That’s why the chances of a cut to UK interest rates this month have now fallen below 30%. The markets are also only pricing in one Bank of England rate cut this year, down from the two expected last week.
Neil Wilson, investment strategist at Saxo UK, says:
On the whole selling in stocks and bonds remains orderly and nowhere near pricing a worst-case scenario.
Spring Statement today – chancellor Rachel Reeves will deliver a message of stability amid the chaos.
The worry is the rise in yield eroding headroom as inflation risks push back the Bank of England’s rate-cutting schedule. The 10yr gilt yield has jumped since the weekend from a little above 4.2% to above 4.4%.
The markets see fewer US interest rate cuts this year too.
According to Bloomberg’s David Finnerty, at the end of last week the swaps markets priced in 61 basis points of cuts in 2026 by the US central bank. Now its down to 46 points – which would mean fewer than two quarter point cuts from the Fed this year.
IMF: We are monitoring Middle East situation closely
The International Monetary Fund has just released a statement on the Middle East crisis.
In it, the IMF points out the crisis has already disrupted trade and economic activity, rocked the financial markets, and driven up energy costs.
It will give a “comprehensive” view of the economic impact of the crisis in April, when it releases its next set of economic forecasts.
The Fund says:
We are closely monitoring developments in the Middle East. So far, we have observed disruptions to trade and economic activity, surges in energy prices, and volatility in financial markets.
The situation remains highly fluid and adds to an already uncertain global economic environment. It is too early to assess the economic impact on the region and the global economy. That impact will depend on the extent and duration of the conflict.
We will provide a comprehensive assessment in our April World Economic Outlook.
Victoria Scholar, head of investment at interactive investor, sums up the situation in the markets today, with the UK’s FTSE 100 index now down 2.25% or 240 points:
Almost all stocks on the FTSE 100 are in the red with only one notable gainer, Smith & Nephew thanks to a price target upgrade from Barclays. Miners and financials are among the biggest losers including Antofagasta, Barclays, Anglo American and Prudential, reflecting the increased geopolitical risk in the Middle East. Intertek has also plunged on the back of earnings.
Oil continues its ascent with Brent and WTI both up close to 4% extending gains after brent crude jumped over 7% on Monday. This was its biggest daily gain since March 2022 pushing the benchmark above $80 a barrel, sparking fears about resurgent inflation. European natural gas prices are also surging around 20% this morning after Qatar decided to stop production. The war between Iran and the US and Isael has intensified after a US embassy in Riyadh was reportedly hit by drones and Isarael attacked Tehran and Beirut.
Gold and the dollar are also staging gains with the precious metal logging its fifth consecutive positive day, rallying beyond Monday’s four-week high. The US dollar is pushing higher against EUR, GBP, JPY and AUD.
Despite the intensity of the conflict, US equities were remarkably resilient on Monday with the Nasdaq and the S&P 500 closing modestly higher while the Dow ended just below the flatline. However, US futures are pointing to a weaker session on Wall Street with all three major averages on track to open down by more than 1% eac
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Pound hits 2026 low
The pound has hit its lowest level against the US dollar in almost three months this morning.
Sterling is down 0.8% against the dollar, or around one cent, to $1.33, the lowest since 10 December.
The dollar is continuing to rally against other currencies, as investors shift their money into safe haven assets.
FTSE 100 slump deepens
The London stock market is plunging deeper into the red – a dreadful backdrop for the chancellor’s statement this lunchtime.
The FTSE 100 index of blue-chip shares has now tumbled by 215 points, or 2% 1.8%, to 10,564 points.
That’s its lowest level in almost two weeks, and leaving the Footsie on track for its worst day in 11 months – since the ‘Liberation Day’ tariff shock of April 2025.
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Chances of UK interest rate cut in March tumble
The chances of a UK interest rate cut this month are plummeting, as the Middle East crisis drives up oil and gas prices.
The money markets now indicate there’s just a 29% chance that the Bank of England lowers interest rates at its next meeting, 19 March. That’s down from 80% last week, before the Iran war erupted.
The interest rate, or yield, on UK two-year bonds has surged today too – up 12 basis points (0.12 percentage points) as the City anticipate that a rate cut is much less likely, given fears of an inflation spike.
That will disappoint borrowers hoping for cheaper interest rates…. and is also a blow to Rachel Reeves, who has taken the credit for the six rate cuts since August 2024.
Jemma Slingo, pensions and investment expert at Fidelity International, says:
“Stubbornly high oil and gas prices could impact economies around the world. Specifically, they could be inflationary and disrupt plans to cut interest rates. The Bank of England is due to announce its next rate decision on 19 March. The bank’s Monetary Policy Committee has held several nail-biting votes in recent months, and conflict could complicate things further.
“For now, however, there is no certainty around what will happen to energy supplies or what this means for the global economy.
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UK grocery inflation rises
UK grocery price inflation has risen, showing that people are being hit in the pocket even before the surge in energy prices feeds through to the economy.
Data provider Worldpanel by Numerator has reported that annual grocery inflation rose to 4.3% in February, after four consecutive months of falls, in a blow for households. That’s up from 4% in January.
FTSE 100 sheds 1% as European markets fall again
European stock markets have opened with fresh falls, as the Middle East crisis continues to grip bourses around the region.
In London the FTSE 100 share index has dropped by 104 points, or almost 1%, to 10,667 points at the start of trading, a one-week low.
Insurance group Prudential (-3.5%) are the top fallers, followed by precious metals producer Fresnillo (-3.6%), and mining giants Antofagasta (-3.5%) and Anglo American and (-3.2%).
There are only seven risers on the index, including energy producers BP (+1.6%) and Shell (+0.35%).
Derren Nathan, head of equity research at Hargreaves Lansdown, says:
Sentiment towards BP and Shell has strengthened significantly off the back of oil price spikes. But it’s a complex picture. Neither company has production in Iran. But BP’s significant production in Iraq and Abu Dhabi risks being bottlenecked through disruption to the Strait of Hormuz. For Shell the same applies to its LNG facilities in Qatar and the Emirates. If a moderate sustainable regime is established in Iran, there is the potential for substantial derisking, and for prices to be rebased downwards. If sanctions are removed, it also opens the door for investment into Iranian oil fields.
But uncertainty remains high. This could prove to be highly profitable for both Shell and BP’s trading arms with Shell’s optimisation capabilities in LNG transit likely to be in particularly strong demand. Shell’s balance sheet strength also leaves it better placed to deal with any prolonged volatility and while BP’s buybacks remain on pause, we’re expecting Shell’s generous payouts are likely to continue this year.
Germany’s DAX index has fallen by 1.75%, Spain’s IBEX lost 1.4% at the open and France’s CAC 40 is down by 1.25%.
Key event
Heathrow boss Thomas Woldbye received a total pay package of £3.8m last year – up 14% from £3.3m in 2024, despite the controversy around his handling of the power outage at the airport in March that messed up the travel plans of 200,000 passengers.
Or rather non-handling, as he was fast asleep, leaving Heathrow’s chief operating officer Javier Echave to deal with the outage, after a fire at a nearby substation knocked out power supplies to the airport.
Woldbye later expressed his “deep regret” at being uncontactable and sleeping through the crisis The outage at Europe’s busiest airport has raised questions over the resilience of the UK’s ageing national infrastructure.
A Heathrow-commissioned inquiry run by former transport secretary Ruth Kelly found Woldbye was not woken by emergency notification alerts and several calls from Heathrow’s chief operating officer because his mobile had gone into silent mode “without him being aware” and he described it as a “technical glitch”. Asked at a later event in Westminster if he had since obtained “an extra loud phone,” Woldbye replied: “Oh, absolutely. And more.”
The company’s annual report shows his annual bonus rose to £1.4m from £1.3m last year, while long-term share bonuses bonuses increased to £1.3m from £1.1m. His salary was also raised, to £850,000 from £775,000. His benefits including a cash travel allowance climbed by 16% to £130,977 and pension contributions were up 4.7% to £87,006.
UK gas price contract soars again
UK gas prices are climbing – adding to the risks of an inflation spike.
The month-ahead UK gas futures contract, for delivery in April, is up 18% this morning at 135.5p per therm, following a 40% jump on Monday
That’s the highest since February 2025, and almost twice as high as its level in the middle of last month.
However, it’s still much lower than in the early days of the Russia-Ukraine war in 2022, when the month-ahead gas price briefly rose over 500p/therm.
The pound is weakening again this morning too, approaching lows seen during yesterday’s volatile trading.
Sterling is down two-thirds of a cent, or 0.5%, at $1.3342 against the US dollar, which is up against a basket of other currencies too.
Oil rising again
The oil price is rising again this morning, as the Middle East crisis threatens energy supplies.
Brent crude, the international benchmark, is up 3.2% at $80.24 a barrel, adding to Monday’s 7.2% rise.
There is ongoing confusion over the status of navigation in the strait of Hormuz after a general in Iran’s Revolutionary Guards threatened to “burn any ship” seeking to navigate the waterway, a vital route for oil and gas shipments.
But US Central Command said the strait – through which a fifth of global oil and gas travel – was not closed, according to Fox News.
However, leading maritime insurers have cancelled war risk cover for vessels operating in the Gulf, driving up freight costs and deterring shipping companies from sailing through the strait.
Rachel Reeves’s plans could be hit by Middle East conflict, say economists
Soaring global energy prices as a result of the widening Middle East conflict will jeopardise Rachel Reeves’s plan to conquer inflation and rekindle growth, economists have warned as she prepares to deliver her spring forecast later today.
Responding to the latest projections from the independent Office for Budget Responsibility (OBR), the chancellor will insist she has “the right economic plan for our country, in a world that has become more uncertain”.
The new forecasts are expected to show the public finances moving in the right direction, with the £22bn fiscal buffer she left herself against her fiscal rules in the November budget little changed.
However, experts said the OBR projections could soon look out of date, if Monday’s surge in oil and gas prices proves long-lasting.
Asia-Pacific shares drop again
Asia-Pacific stock markets have fallen again today, as the Middle East crisis continues to alarm investors.
In Tokyo, the Nikkei 225 index has fallen by 3%, while China’s CSI 300 index is down 1.5%.
In South Korea, where the stock market was closed yesterday, the KOSPI index has tumbled by almost 8%.
Ipek Ozkardeskaya, senior analyst at Swissquote, says:
Geopolitical risks are rising – not easing. Volatility is increasing alongside trade and geopolitical uncertainty, and the risk of renewed inflation could tighten global financial conditions.
ECB’s top economist: Lengthy Iran war could cause inflation ‘spike'
The European Central Bank’s chief economist has warned that a prolonged war in the Middle East and a persistent fall in oil and gas supplies from the region could cause a “substantial spike” in inflation.
Philip Lane has told the Financial Times said that “directionally, a jump in energy prices puts upward pressure on inflation, especially in the near term.”
Lane said the impact would depend “on the breadth and duration of the conflict”, adding:
“The impact would be amplified if it also gave rise to a repricing of risk in financial markets”.
Introduction: Reeves to respond to spring forecast after oil and gas prices surge
Good morning.
“Events, dear boy, events”. Rachel Reeves may have the (probably apocryphal, oft-quoted) wisdom of Harold Macmillan in mind today, as she responds to the latest official assessment of the UK economy.
The Office for Budget Responsibility’s new Spring Forecast could, in happier times, have brought the chancellor good news this afternoon.
Economists predict they will show that the UK is still keeping within the OBR’s fiscal forecasts – helped by a record budget surplus in January – and that inflation is heading down towards target.
However, the Middle East crisis mean such predictions are out of date before they’re even published, as the world faces the threat of a new energy crisis.
Yesterday, liquefied natural gas (LNG) prices rocked by over 40%, and oil rose by over 7%, after Qatar’s state-run energy firm halted LNG production and Saudi Arabia temporarily shutting down some units of its massive Ras Tanura oil refinery following attacks by Iran.
These moves, as the US-Israel war on Iran rages, risk reigniting the cost-of-living crisis.
As economists at Investec explain:
The main economic consequence of higher energy prices would be to boost inflation.
In the UK, illustratively, the current level of the oil price would, if maintained, add about 0.2%pts to headline inflation via higher petrol prices; and a sustained 40% shift up in natural gas price futures would boost this by a further 0.7%pts or so, via higher household utility bills.
We’re not expecting major policy changes today, as the government has committed to holding just one major fiscal event each year in the autumn. That’s why it’s billed as the ‘spring forecast’ not the ‘spring statement’.
Instead the chancellor is expected to insist the government has the “right economic plan for the country” in a “yet more uncertain” world.
Reeves is expected to tell MPs:
“Stability in the public finances, investment in infrastructure and reform to our economy.
Building growth not on the contribution of a few people or a few parts of the country, but in every part of Britain with a state that doesn’t stand back, but steps up.”
The agenda
8am GMT: Worldpanel supermarket inflation and sales figures
9.30am GMT: ONS data: Mergers and Acquisitions involving UK companies: October to December 2025
10am GMT: Flash estimate of eurozone inflation in February
12.30pm GMT: spring forecast statement from Chancellor Rachel Reeves
1pm GMT (roughly): Office for Budget Responsibility’s spring forecasts published
2.30pm GMT: Office for Budget Responsibility press conference
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