Rachel Reeves to deliver spring statement

US and Israeli strikes on Iran on Saturday, followed by Iranian counterattacks across the Gulf just three days before the spring statement, are likely to overshadow the chancellor’s low-key event.

Iranian attacks on ships in the Strait of Hormuz, through which a fifth of the world’s oil and gas passes, have pushed oil prices to their highest level in about a year. Shipping companies have confirmed they will avoid both the Strait and the Suez Canal.

If the strikes continue, they could have knock-on effects on inflation, interest rates and commodity prices.

A prolonged disruption to this key shipping route could push oil prices higher, affecting petrol prices, utility bills, transport costs, and production costs, which would in turn put upward pressure on headline inflation.

Rising inflation from the conflict would make it less likely that the Bank of England will cut interest rates later this month, undermining the government’s hopes for looser borrowing costs.

Jemma Slingo, pensions and investment expert at Fidelity International, said: “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.”

No.

The chancellor has said she will not make any major announcements, although she could introduce minor changes to tax policy.

Such moves carry political risk, as she could be accused of using stealth taxes.

They could also leave her vulnerable to criticism from opposition parties and, as seen previously, potentially from members of her own party.

Rachel Reeves will use her spring statement to outline the latest economic forecasts from the Office for Budget Responsibility, which will be published shortly after she finishes speaking.

Despite ministers billing the event as low-key, it is a significant moment. The updated projections will offer the clearest indication yet of the impact of the autumn budget and the government’s broader economic strategy.

The Office for Budget Responsibility produces two sets of forecasts each year, assessing the outlook for growth and the public finances and judging whether the government is on course to meet its self-imposed tax and spending rules.

Reeves has set two fiscal rules: not to borrow to fund day-to-day public spending by the end of this parliament, and to ensure that government debt is falling as a share of national income by the end of the parliament.

The watchdog was thrust into the spotlight at the November budget when it accidentally published its assessment about 40 minutes before the chancellor rose in the Commons, effectively revealing key elements of her plans in advance.

Disruption to gas supplies in the Middle East poses a challenge for Britain, despite Qatar accounting for less than 2% of UK imports in 2024, owing to its impact on wholesale prices.

Brent crude, the international benchmark, climbed back above $80 a barrel overnight, with some analysts warning that prices could reach $100 if the conflict persists.

A renewed energy shock risks driving inflation higher, eroding consumer purchasing power, threatening growth and undermining Labour’s pledge to tackle the cost of living.

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.”

Analysts at DBS said the conflict raises “the spectre of stagflation”.

“While energy prices are nowhere close to the levels seen during the start of the Russia-Ukraine conflict in 2022, investors will probably be keeping a close eye on the extent and duration that energy supplies will be disrupted,” they said.

In her November budget, Rachel Reeves built £21.7bn of headroom against her fiscal rules, a move that helped reassure bond markets. Since the 2024 election she has raised taxes by £66bn in an effort to restore fiscal stability.

Although the chancellor retains a reserve to cushion households from higher energy costs later in the year if required, the Treasury says average household bills will fall by £117 from April and remain at that level for the following three months.

Rachel Reeves has pledged to hold only one fiscal event each year, the autumn budget, and will use Tuesday’s spring statement to deliver a brief address of about 20 minutes setting out updated forecasts from the Office for Budget Responsibility, the independent fiscal watchdog.

Treasury officials said the chancellor would not announce new policies or tax changes and would adopt a “confident” tone on the UK economy’s outlook.

Reeves is expected to postpone dealing with mounting pressures, including rising unemployment and a substantial shortfall in defence spending. Measures aimed at lifting the UK’s sluggish growth rate are due to be outlined in a separate speech later in March.