Rachel Reeves warns US-Iran war will 'put upward pressure' on inflation and defends energy bill plan

Overnight, the price of oil exceeded $100 per barrel after the Islamic Republic's move to close the Strait of Hormuz trading route, which is expected to have inflationary blowback down the line.

She said: "I'm clear-eyed about my response to the current situation. The economic impact on the situation in the Middle East will depend on its severity and duration."

However, Ms Reeves acknowledged President Donald Trump's move to launch military action against Iran is likely to "put upward pressure" on inflation.

The Chancellor addded: "I am clear eyed about my response to the current situation. My economic approach will both be responsive to a changing world and responsible in the national interest.

"The economic impact of the situation in the Middle East will depend, of course, on its severity and its duration. The movements that we have already seen are likely to put upward pressure on inflation in the coming months."

According to the Chancellor, the Labour Government is already taking action to bring down energy bills with prices set to remain unchanged until the end of June.

She noted that her ministers are exploring options to help houses using heating oil and who are not protected by the energy price cap, which has led to a response from the Competition and Markets Authority (CMA).

The watchdog stated: "We know the situation in the Middle East is putting pressure on heating oil prices, and we recognise that this will worry people who may find it hard to afford these extra costs.

"Generally, we would expect that customers who have placed orders for heating oil should receive it at the agreed price. Suppliers should be clear what they are charging and terms must be fair. We won’t hesitate to take action if we suspect that consumer or competition law is being broken."

Addressing fears over a spike in petrol prices, Ms Reeves cited that costs are currently cheaper than they would have been under the Conservatives prior to the last General Election.

As the conflict continues, the AA has advised drivers to consider cutting out "non-essential journeys" because fuel prices are expected to rise as the cost of oil skyrockets at the pump.

Furthermore, financial information website Moneyfacts found that mortgage lenders have raised their interest rates in response to the US-Iran war.

Former Conservative Chancellor Jeremy Hunt said: "When I was doing her job, the Treasury rule of thumb was that a 20 per cent increase in energy prices meant one per cent more on inflation and 0.5 per cent less on growth.

"The truth is it is much too early to know whether she is going to have to find £78 billion to help households with energy bill as I had to in 2022."

In response, Ms Reeves said: "I think this point about it being too early to tell the impact is really important. Of course, we will take the necessary actions to protect consumers and businesses, but the most important thing we can do at the moment is to de-escalate the conflict and work with Lloyds of London and countries around the world to get those vessels flowing through the Strait of Hormuz."