18 March 2026: Reeves is accused of attacking Brexit to cover her deficiencies

The conflict in Iran may already force the Bank of England to hold UK interest rates for the rest of this year, possibly longer if it drags on. The effect of this could be disastrous for the Chancellor, who had been pinning her hopes on a rate cut at either this week’s meeting of the MPC or the one scheduled for April 30th.

It appears there is no chance of a cut this week, with members of the Committee likely to consider the longer-term implications of oil prices hovering around $100 per barrel. Indeed, should the Straits of Hormuz remain effectively shut for the next two to three months, the next move in UK rates could be a hike.

There have been many obvious effects of the conflict seen in the UK. The price of regular unleaded petrol has risen by an average of eight pence per litre, with diesel rising by significantly more. The mortgage market has seen nearly 500 products withdrawn by lenders, and both the two-year and five-year fixed rates have risen above 5%. It has been estimated that the cost of a fixed-rate mortgage has risen by more than £750 a year in the last two weeks.

There have been no published comments from members of the MPC since the conflict began, so market participants will be hanging on Andrew Bailey’s every word at his press conference following tomorrow’s meeting.

This Government has been blaming the previous administration for all that ails the economy, even as its second anniversary approaches. Keir Starmer and Rachel Reeves are working on a Brexit “reset” with Reeves desperate for a Brussels “safety blanket” as they face energy and defence crises.

Reeves is likely beginning to see the error of her ways is making it a rule that day to day expenditures have to be met by current tax income and is desperately trying not to be forced into yet another U-turn by raising her self-inflicted debt ceiling to fund payments like the £53 million additional support for those who use oil to heat their homes and provide hot water.

The Brexit reset that is currently under review appears to have hit a stumbling block as Brussels wants EU students who want to study in the UK to be charged the same as UK students, which could add a further £150+ million, which will need to be funded by Reeves’ “wiggle room”, which is being diminished almost daily.

The UK has told Brussels that it may be possible to offer a discount on tuition fees, but it is standing firm on allowing EU students to pay the same fees as UK students. The EU is currently insisting on equality and feels it is in a stronger negotiating position.

The desperation gripping Sir Keir Starmer’s Government can no longer be hidden. Rachel Reeves delivered a speech to the City of London, aiming to reassure her party, our country, and global markets that she has a plan to pull Britain out of its no-growth quagmire.

Her solution is to reverse course. In the absence of new ideas, the Government is on a rapid mission to realign with the European Union. It blames Britain’s problems not on its harsh tax increases but on Brexit.

Reeves hates the British decision to leave the bloc, declaring in her landmark Mais lecture yesterday: “Brexit did deep damage. Recent independent studies indicate its GDP impact could be as much as 8%.”

Sterling continued to rally yesterday as the difficulties facing the U.S. administration drove traders to sell their dollar holdings. As Trump becomes more isolated from both within and internationally, the effect of the Iran conflict on the U.S. economy will be magnified.

The pound reached a high of 1.3364 yesterday and closed at 1.3355.

Investors will be watching the Federal Reserve this afternoon, as Chair Jerome Powell has an opportunity to weigh in on the economic impact of the war in Iran.

The Federal Reserve has faced numerous challenges in recent years. The worst inflation shock in decades, an economy that continues to defy expectations, and, since Donald Trump’s return to the White House, intense political attacks that threaten the Central Bank’s future independence. If that wasn’t enough, there is now also the potential for the biggest energy crisis since the 1970s, triggered by the US-Israel conflict in Iran.

That’s the backdrop as Fed officials meet in Washington for their regular gathering to decide on monetary policy. They’re expected to keep their policy rate steady, within a range of 3.5% to 3.75%. However, Fed watchers will be attentive to their every word to understand how they believe the crisis in the Middle East might influence the cost of mortgages or other loans for American households and businesses in the coming months.

As a first step, Fed Chair Jerome Powell will want to reassure markets and make it clear that officials won’t panic, especially given the uncertainty about the war’s endgame and its potential impact on energy prices.

This will be Powell’s penultimate meeting before his term as Chairman ends in May.

It is unlikely that he believed he would face a new crisis that would bring the Fed into further conflict with the President.

Trump has a firmly blinkered attitude to interest rate cuts, seemingly seeing rates in isolation from the rest of the economy. With inflation already likely to rise back above 4% imminently, a rate cut now would likely send it soaring back towards 5%.

Several global Central Banks are meeting this week amid an oil price shock. Policymakers must decide whether to signal higher interest rates to combat inflation. Past lessons from oil shocks and pandemic-era inflation complicate this decision. The Federal Reserve may signal no rate cuts this year by adjusting its economic projections.

The Reserve Bank of Australia pulled the trigger yesterday, raising its benchmark policy rate and with the Bank of Japan, the European Central Bank and Bank of England all meeting this week, what Powell says, and just importantly how he says it, will have serious consequences for the global economy.

Trump was critical of his “partners’” refusal to become involved in the Iran conflict, again singling out Keir Starmer for what he considers to be his weak leadership. While he can most deflect criticism from overseas, he is also facing issues at home.

Trump's top counterterrorism official has resigned over the war in Iran, urging the president to "reverse course".

National Counterterrorism Centre Director Joe Kent said that Iran posed "no imminent threat" to the US and claimed the administration "started this war due to pressure from Israel and its powerful American lobby".

The White House dismissed the resignation, saying the President had "compelling evidence" that Iran was going to attack the US first.

With his departure, Kent is the most high-profile figure within the Trump administration to publicly criticise the US-Israeli attack on Iran.

The dollar index has lost some of its impetus, having failed to secure a foothold above the 100 level. Yesterday, it slipped further to a low of 99.5 and closed at 99.55

Speculation about Christine Lagarde’s potential successor has ignited a wider debate over whether the next European Central Bank President should be chosen not only for their monetary credibility but also for their alignment with the ECB's current role in Europe’s broader economic strategy.

The debate over who will succeed Christine Lagarde at the European Central Bank has broadened into a wider discussion about Europe’s economic future, with observers suggesting that the bloc should use the upcoming appointment to enhance competitiveness and integration.

The debate is clearly focused on the future. Although the ECB is not expected to change leadership until 2027, speculation has increased amid reports that Lagarde might leave before her term concludes.

Among those expected to be contenders are Bundesbank President Joachim Nagel, Spain’s Pablo Hernández de Cos, and the former Dutch Central Bank Governor Klaas Knot.

The reason the discussion matters beyond Frankfurt is that the ECB presidency is not viewed purely through a narrow monetary lens.

Nagel stands out because he has championed deeper economic integration, including a capital markets union and joint EU borrowing, positions presented as more flexible than Germany’s traditional fiscal orthodoxy.

However, considering Germany’s overall influence within the Union, it has long been thought that appointing a German ECB President might be a step too far.

The suggestion is that the next ECB chief could influence the political climate across Europe’s competitiveness discussion, even where monetary policy itself is not the primary tool.

Germany had a promising start to the year, but optimism has quickly faded as soaring energy prices threaten to undermine the country’s fragile economic recovery.

The ZEW Economic Sentiment Index, which measures investor confidence in Germany, the largest economy in Europe, collapsed from 58.3 in February to -0.5 in March, significantly missing the forecast of 39 points.

Professor Achim Wambach, President of ZEW, stated, "The ZEW Indicator has taken a dramatic downturn. The intensifying conflict in the Middle East is pushing energy prices higher and fuelling inflation, raising the risk that Germany’s tentative recovery could stall."

Industries that depend heavily on energy, such as steel, cement, and chemicals, are especially vulnerable to these rising costs. He went on, "The impact will depend on how long and how severe the conflict becomes.

Financial market experts remain doubtful that a resolution will be reached soon."

Meanwhile, in France, despite a worrying national and international context, there have been several positive signals from business leaders, notably driven by the defence and aerospace industries.

Since the start of 2026, a slight but genuine wave of optimism has appeared in the services and construction sectors, where steady activity is anticipated, as well as in aerospace and defence, where order books remain full.

The electrical and electronics industries anticipate benefiting from both the rise of artificial intelligence, which requires massive infrastructure such as data centres, and the momentum of decarbonization.

The euro has benefited from the dollar’s lack of momentum. Yesterday, the common currency rallied to a high of 1.1547 and closed at 1.1540.

Have a great day!