Sir Keir Starmer is set to hold crisis talks next week with the Bank of England and senior Cabinet colleagues to tackle the spiralling cost of living driven by the conflict in Iran.
The Prime Minister's emergency summit comes as households face mounting pressure from surging energy costs and rising fuel prices triggered by turmoil in the Middle East.
Last month, joint US-Israeli military strikes on the Islamic Republic prompted Tehran to retaliate against American bases in the Gulf region.
The closure of the Strait of Hormuz, which supplies a fifth of global energy, has sent shockwaves through energy markets. Brent crude has climbed to $112 per barrel, up sharply from $73 before hostilities began.
To grapple with the fallout, Sir Keir will meet with the Governor of the central bank to discuss measures to address the situation.
It comes as Britain appears poised to become further embroiled in the conflict, with President Trump insisting allies police the vital strait, and Iran launched an attack on the Chagos Islands.
Senior Government figures are said to be deeply concerned about the potential for further economic damage, with warnings of higher energy costs and increased mortgage rates.
Latest projections from Cornwall Insight indicate that typical household energy bills will jump by £332 annually when the price cap changes in July, pushing costs to nearly £2,000.
Keir Starmer is set to hold crisis talks with the Bank of England to grapple with the energey prices crisis
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Ministers have already begun drawing up contingency measures should the conflict drag on, with transport officials examining the possibility of reducing speed limits to cut fuel consumption.
The Treasury has established an "Iran board" comprising ministers and officials to assess potential responses.
Measures on the table include a "last resort" universal energy bill bailout if global prices remain elevated.
The International Energy Agency has urged people worldwide to limit commuting where possible as the energy crisis intensifies, describing it as "the greatest global energy security threat in history".
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Brent crude has climbed to $112 per barrel, up sharply from $73 before hostilities began
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Downing Street said this represented general guidance for all countries and that Britons "should continue to go about their days in normal fashion".
However, one Cabinet source spoke of "deep gloom" in both the Treasury and No10.
Government borrowing costs surged past five per cent on Friday for the first time since July 2008, just months before the collapse of Lehman Brothers sparked the global financial crisis.
The spike in gilt yields has been driven by fears that the conflict in Iran will trigger an inflation crisis in Britain.
Senior government figures are said to be deeply concerned about the potential for further economic damage, with warnings of higher energy costs and increased mortgage rates
| GETTYEconomists warn that Rachel Reeves may be compelled to raise taxes or implement spending cuts to restore compliance with her fiscal rules.
Martin Beck, chief economist at WPI Strategy, told The Telegraph: "If that happens, the Chancellor may need tax rises or spending restraint later to restore compliance with the fiscal rules."
The Chancellor's carefully preserved fiscal headroom could shrink by £7-8 billion due to higher interest payments alone.
Steeper borrowing costs threaten to force an additional £7 billion in debt servicing this year.
On Friday, President Trump announced that the US was considering 'winding down' the offensive against Iran.
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On Friday, President Trump announced that the US was considering “winding down” the offensive against Iran.
Speaking to the press while departing the White House, he declared that the Strait of Hormuz must now be “guarded and policed, as necessary, by other Nations who use it”.
Meanwhile, the Prime Minister has given a green light for American warplanes to use British bases to launch sorties against the Islamic regime to open up the waterway.
Soon after the announcement, Tehran launched two ballistic missiles at the Diego Garcia base on the Chagos Islands, the British Indian Ocean Territory.
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