Bankers I converse to agree: Britain is about to be torn aside by a monetary tsunami, says ALEX BRUMMER – who reveals it isn’t simply an oil disaster to worry – and steps each smart individual should take NOW

Forget Labour’s vacuous pledges on growth and its vain promises to bring down the cost of living.

Britain and the global economy face a shock every bit as damaging as the one we confronted after Russia’s brutal invasion of Ukraine in 2022 – and just as destructive as the Middle East crises of the late 20th century.

Amid soaring energy prices, failing global markets, surging inflation and rising borrowing costs, we’re about to be torn apart by a perfect economic storm.

Britain is in a parlous situation. The Labour Government and Chancellor Rachel Reeves have been put to the test over the last 21 months in office and found sorely wanting.

There’s been precious little recognition of the dangers facing the country’s economic and national security. Now, as the Government reels from an external trauma far more serious than anything it has faced so far, we must all suffer the consequences.

Energy-price thunderbolts are almost uniquely destructive. As a long-standing City editor who has lived through – and reported on – a range of previous oil and gas shocks, I have seen first-hand the damage they inflict on households, on businesses, on corporate Britain and on the world economy itself.

The bankers, economists and policy makers I speak to are, for once, in near complete agreement: this is very, very serious. Their anxiety is palpable.

In the last 24 hours, the price of Brent crude oil (the industry benchmark) has soared to $115 a barrel, 50 per cent higher than at the onset of the current conflagration.

City forecasters are updating their inflation projections, some suggesting that UK consumer prices will have risen by four per cent by the end of the year. That’s twice the target set by the Treasury.

With inflation about to surge, central banks have stepped back from cutting interest rates. Instead of lowering borrowing costs – as had been widely expected – the Bank of England’s rate setters yesterday voted unanimously to keep them on hold at 3.75 per cent.

This followed a similar decision overnight from the US central bank the Federal Reserve.

In a warning of what might come next, the Australian Reserve Bank actually increased the cost of borrowing, lifting rates by a quarter of a point to 4.1 per cent.

Among the more alarming aspects of the current crisis is Britain’s heavy dependency on foreign gas supplies.

The push towards unreliable green energy – and away from oil – means we import more gas than any of our competitors in the G7 group of richest nations, a fact which is impossible to ignore as the huge liquified natural gas (LNG) facilities at Ras Laffan in Qatar burn thanks to strikes from Iran.

Even if shipments from Norway and the US can be increased to compensate for shortfalls from Qatar, we must all be prepared for a hefty jump in bills.

The Government’s promise of a ‘price cap’ might protect some households in the next few months but, be in no doubt, a fuel-cost tsunami is on its way.

Even before this energy-price bombshell, the UK was in particular difficulty. Despite Keir Starmer’s claims to have protected the UK from Trump’s trade war, our exports of goods to the United States fell by 10.3 per cent in 2025, down to £59.2billion. The United States is Britain’s single biggest trading partner for imports and exports.

Already reeling under the weight of job-destroying tax increases, and the highest energy costs in the developed world, the productive part of our economy has been stalked by months of uncertainty.

And that is without considering deeper – still more terrifying – structural problems such as the AI-driven jobs bloodbath taking place across white-collar Britain, or the emerging ‘shadow banking’ debt crisis (caused by unregulated private finance) now shaking the foundations of the Western banking system.

We can forget any talk of a recovery for the British economy this year.

The latest jobless figures, just released, show that unemployment, after rising steadily since Labour came to office, has stabilised at 5.2 per cent of the workforce.

Unemployment for 18–24-year-olds is at 16 per cent, a ghastly indictment of job-destroying taxes and regulation. That is more than 730,000 unemployed young people.

Britain’s oil and gas vulnerability is already impacting on our financial markets. In last week’s Spring statement, the Chancellor felt able to boast that, by the end of this Parliament, she would start to cut the nation’s debt levels and restore the fiscal ‘headroom’, the money put aside for economic emergencies.

But she will find that higher borrowing costs now demanded by global markets – a response to Britain’s obvious economic weakness – have driven a coach and horses through all that.

For anyone seeking to move house, this will be punishing. Home-loan companies have withdrawn hundreds of the best deals, and the price of a new two-year fixed rate mortgage now stands above five per cent a year.

Prospects for a robust recovery based on a ‘house-building revolution’ are dead in the water.

So many of Labour’s manifesto pledges, such as building 300,000 new homes every year for five years, developing grey belt land and creating new towns, now look stale, outdated or plainly irrelevant.

As the Gulf conflict shifts from military to economic targets, we must be clear-eyed: the foundations of the world economy are under attack. I am not alone in feeling profoundly concerned. It’s a crisis well beyond this government’s capabilities. We are hopelessly exposed.

How to protect yourself from the energy price shock 

By Rachel Rickard Straus, Group money editor

British households need to brace themselves as the energy price escalation sends shock waves through our finances.

Prepare for rising prices at the petrol pumps, higher gas and electricity bills, elevated mortgage rates and surging inflation if the escalation is sustained.

There are steps you can take to protect yourself from the worst if you act now.

Rising costs

Hopes for a reprieve from five years of high inflation look dead in the water. It’s hard to think of a consumer good or service that would not be impacted by sustained higher energy costs.

Manufacturers are warning of price rises due to the higher cost of production and transportation of goods on everything from paint to uPVC windows and wood.

The Food and Drink Federation cautions that energy is embedded into every stage of their process – from growing to packaging – and so will be hit by price rises. Fertiliser in particular is very energy intensive to make.

Rising prices on consumer goods and services could push cash-strapped households to cut back where they can. That could hurt the economy as people go out less, buy less and hire less. Tax firm Blick Rothenberg warns it could even cause unemployment to rise.

Households facing higher inflation sometimes bring forward purchases before prices escalate. But for most this is unrealistic. Few of us have the cashflow to buy in advance and doing so can be risky. 

If the conflict is resolved quickly, the price of goods may not rise significantly and then we’re left with things we don’t yet need. Buying in advance can also be hazardous if large numbers do it as it can lead to shortages and embolden retailers to put up prices.

However, you can take measures to protect your finances that you will not regret whatever happens. This could include paying down unsecured debt where you can and trying to build up a cash savings buffer in case circumstances worsen.

Mortgages

The mortgage market has already transformed since the start of the conflict and there is likely more to come.

At the beginning of March, the average of the top ten lenders’ two-year fixed rates for remortgages was 3.77 per cent. By Thursday, the average was 4.35 per cent, according to broker London & Country. That’s an increase of 0.58 percentage points in less than three weeks.

On a 25-year £200,000 repayment mortgage, you’d pay an extra £780 a year.

If you’re due to remortgage this year, speak to your broker or lender and lock in a new rate as soon as you can.

You can reserve a new mortgage rate as early as six months before your current one ends.

If rates begin to fall again, it is usually possible to abandon it in favour of a new one before the new mortgage begins.

> This is Money Mortgage calculator: Check rates based on your home value 

Energy bills

Energy bills are likely to be driven higher.

If you’re on your supplier’s default tariff you will benefit from the price cap exerted by the regulator Ofgem.

This is set at £1,758 a year for a typical household until the end of the month and then at £1,641 for the following three months.

After that the picture becomes less clear and will depend on how long the crisis lasts.

Energy supplier EDF is predicting a July to September cap of £1,858, rising to £1,919 from October to December and £1,928 from January to March next year.

If you want to protect yourself from the uncertainty, you could lock into a fixed energy deal that will set your price of energy for a year or longer.

At the start of the conflict, there were 39 tariffs on the market. By Thursday, there were only 18 available. The cheapest tariff for an average household was £1,509 – now it is £1,695.