Rachel Reeves makes Spring Statement vow to households as Iran disaster threatens economic system

The Chancellor pledged to protect families from economic shocks in a pared-back Spring Statement speech, where she insisted her strategy was paying off for working people

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Rachel Reeves said she had the right plan to help ordinary folk in an “more uncertain” world as war in the Middle East cast a cloud over her Spring Statement.

The Chancellor pledged to protect families from economic shocks in a pared-back speech, where she insisted her strategy was paying off for working people. Ms Reeves pointed to economic green shoots, including inflation falling faster than expected and better than expected growth in 2027 and 2028.

Households will be £1,000 better off a year by the next election, she said, thanks to a boost in disposable income. But the Iran conflict risks upending forecasts and delivering a hammer blow to the Government’s efforts to drive down the cost of living as energy prices rocketed and global markets slumped.

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READ MORE: Nigel Farage’s Reform UK torn apart by Rachel Reeves at Spring StatementREAD MORE: Rachel Reeves vows Brits will be £1,000 better off in Spring Statement – all the key points

In an address to MPs, Ms Reeves said: “This Government has the right economic plan for our country. A plan that is even more important in a world that in the last few days has become yet more uncertain.

“With the unfolding conflict in Iran and the Middle East, 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.”

Despite the escalating crisis, Ms Reeves said she would stand firm on making sure people are better off by the end of the decade. She said: “I know that the question people will ask themselves at the next general election is this: ‘Are me and my family better off?’ I am determined that the answer will be yes.”

The Chancellor will meet North Sea industry bosses on Wednesday to discuss the gas and oil prices sent soaring by Iran’s threats to the Strait of Hormuz, a crucial shipping route. But experts warned the war spiralling across the Middle East could hammer family finances, with echoes of the impact of Russia’s invasion of Ukraine on global energy supplies and shipping routes.

Households could see energy bills surge by an average £500 a year if the sharp rise in oil and gas prices is sustained, according to the Resolution Foundation. “The escalating conflict in the Middle East has now triggered a sharp rise in oil and gas prices which could cause living costs to start rising more quickly again,” the think tank said.

“If sustained, these rises could add over £500 to the typical household energy bill in the summer and roughly a percentage point to inflation – bringing another unwelcome cost of living shock to families.”

The Office for Budget Responsibility warned the Middle East crisis could have a “very significant” impact on the UK economy, as it cut its forecast for growth this year and predicted higher unemployment. The watchdog’s all-important estimates were finalised before the dramatic events in the region, when US-Israeli strikes killed Iran’s Ayatollah Ali Khamenei.

The OBR reduced its UK growth prediction this year to 1.1%, down from the 1.4% it forecast in November. However, it upgraded its forecasts for 2027 and 2028 from 1.5% to 1.6%.

It also predicted the UK’s jobless rate would peak at 5.3% this year, “meaningfully” more than it previously thought, and reckoned it would remain higher than expected for the next two years amid pressure from “subdued hiring demand” for new workers.

Ministers are expected to set out reforms in the coming weeks focused on helping young people in the job market after years of Tory neglect.

In its report, the OBR said: The geopolitical situation and global trade policy remain highly volatile. Conflict in the Middle East, which escalated as we were finalising this document, could have very significant impacts on the global economy, particularly energy markets.”

Professor David Miles, a member of OBR’s budget responsibility committee, warned of the “very substantial” increase in oil and wholesale gas prices in the wake of the escalating conflict. The question, he stressed, was whether the spike would be short term or if these higher prices remained.

But he warned: “Energy driven inflation is unambiguously bad for everyone in the UK,” adding that it could add as much as 1% to the rate of inflation. The OBR’s forecast had been for inflation to return to the Bank of England’s 2% target this year, but Prof Miles added: “There must be more uncertainty about that now.”

The watchdog predicted a fall in government borrowing as a share of the economy, for spending to be broadly flat, but for the tax take to reach a record high by 2030.

Tom Josephs, another committee member, said UK debt levels were around three times what they were before the financial crisis of 2008. As a result, he warned: “Public finances are more vulnerable to risks and shocks.”

Helen Miller, head of the Institute for Fiscal Studies, said of Chancellor Rachel Reeves ’ statement: “The OBR’s forecast for borrowing improved ever so slightly, driven by strong tax receipts, which were more than enough to offset the cost of various policy announcements and reversals since the autumn.

“The all-important context is that ongoing events in the Middle East, and the sharp market movements they have induced, have already upended some of the assumptions underpinning this forecast.”