24 March 2026: The PM warns against the ‘false comfort’ of thinking that the effects of the war in Iran will end quickly

Despite having assured U.S. President Trump that the UK would not be dragged into the war in Iran and having received a volley of abuse in response, the Prime Minister still believes he can influence Trump’s behaviour enough to make him a significant player in the outcome.

Appearing before a committee of MPs yesterday, Sir Keir Starmer warned that it would be a mistake to expect the war to end quickly, despite the conciliatory noises coming from Washington yesterday.

The Prime Minister said he had told his team not to succumb to any sense of "false comfort" and that he believed the crisis in the Middle East would end soon. It follows Trump's revelation yesterday that he had called off plans to “obliterate” Iran’s energy network, as the US President claimed there had been “productive” talks on ending the war. He stated he would "postpone all strikes against Iranian power plants and energy infrastructure" for five days, raising hopes of a swift resolution.

Starmer told the Committee, "I think all our focus and energy have to be on the swift de-escalation, but we've got to plan on the basis that it could go on for some time, and that's the way in which we'll plan this afternoon.

"Since the conflict started, I've been really clear with the team that we mustn't fall into the sort of false comfort of thinking that there will necessarily be a quick and early end to this.”

He added: "On energy supplies, I can reassure the committee that we haven't any significant concerns about energy supplies. Although obviously, the price fluctuates daily."

Sir Keir was scheduled to host an emergency Cobra meeting with Ministers and banking chiefs later in the afternoon to discuss the cost-of-living impact the war, now in its fourth week, is already having on UK households.

Bank of England Governor Andrew Bailey was due to attend. However, he has been clear that he believes the only way to avoid an inflationary crisis affecting every aspect of the economy is to promptly reopen the Strait of Hormuz to tanker traffic.

Since Iran’s Foreign Minister wrote on social media that the talks Trump had called “productive” had not even taken place, it is obvious to most observers that the conflict still has some way to go before a resolution.

Labour has been advised to postpone the planned introduction of pay-per-mile car taxes until 2030 due to concerns it could hinder the adoption of electric vehicles. The UK will ban the sale of new internal combustion engine cars from 2030, allowing only zero-emission vehicles to be sold from 2035 onwards.

The current Government has outlined the following changes made by the previous Conservative administration, which reverted to a 2035 phase-out deadline. The Association of Fleet Professionals (AFP) warned that delaying the 2028 deadline for implementing pay-per-mile car taxes would pose significant challenges for businesses.

From 2028, the Government will introduce Electric Vehicle Excise Duty (eVED) to ensure owners of zero-emission vehicles pay for their use of the road, like all other motorists. Electric car owners will be charged 3p per mile, while hybrid owners will face 1.5p per mile when the new rules are launched.

The AFP said the planned 2028 introduction of eVED would impact the sale of new electric vehicles and make it difficult for fleets to switch.

The events of yesterday caused significant volatility across the entire financial market. Sterling saw considerable fluctuations within a relatively narrow range as traders found themselves whipsawed by contradictory words and deeds. It ranged between 1.3479 and 1.3257, eventually closing higher on the day at 1.3435.

For years, U.S. equity markets have appeared unstoppable. The rise of artificial intelligence, record corporate share buybacks, and the prospect of lower interest rates have propelled this bull market rally.

However, the foundation of one of Wall Street's key drivers is fading, and neither Wall Street nor everyday investors are yet ready for it.

The stock markets entered 2026 at their second-highest valuation since 1871, as measured by the S&P 500's Shiller Price-to-Earnings Ratio. Investors have been counting on further interest rate cuts by the Federal Reserve to boost growth.

Lowering interest rates encourages companies and individuals to borrow, which ultimately leads to more hiring, innovation, and acquisitions.

Nonetheless, the conflict in Iran has disrupted the Federal Reserve’s plans. Since the U.S. and Israel launched military strikes against Iran on 28 February, oil prices have surged significantly.

This is directly due to Iran's near-total closure of the Strait of Hormuz, through which about 20% of the world's oil and a similar amount of LPG are transported daily. The jump in oil prices is expected to have widespread effects on the U.S. economy, particularly by raising the inflation rate in the coming months, which will prompt a pause in expected rate cuts and possibly lead to rate increases.

Chicago Federal Reserve President Austan Goolsbee stated yesterday that he is more concerned about inflation now than unemployment, despite apparent progress in the conflict with Iran.

In a CNBC interview, an FOMC member said policymaking is challenging in the current climate. He spoke shortly after the President announced that progress had been made in negotiations with Iran and that further attacks on energy infrastructure would be halted for five days as discussions continue.

“The most important thing is to figure out the through line of what is happening,” Goolsbee said. “What makes this a fraught but intense moment is nobody can tell us what is going to happen on the ground in the conflict in the Middle East, and how long that lasts.”

Goolsbee concurred with the vote against a rate cut in December and stated that he shared the majority view to keep short-term rates steady at the Federal Open Market Committee's January and March meetings.

He is not an FOMC voter this year but will be again next year.

FOMC officials last week indicated that a majority still expect a cut this year and another next year. However, Goolsbee said his inclination would depend on inflation's trajectory, and he warned against “a repeat of the team-transitory mistake” in which the Fed underestimated the severity of inflation in 2021.

President Trump's lengthy efforts to remove Jerome Powell could ultimately extend the Fed chair's term.

Powell confirmed after last week’s FOMC meeting that he plans to remain as the Fed's chair on an interim basis if Kevin Warsh, Trump's candidate for the next chair, is not confirmed by the Senate before Powell's term ends in May.

The dollar index experienced a turbulent ride as a steady stream of reports and comments influenced traders. The index dropped from a high of 100.15 to a low of 98.88 before eventually closing at 99.14.

Europe’s reliance on bank-based funding prevents the continent from reaping the full benefits of innovation centred on artificial intelligence, according to European Central Bank Chief Economist Philip Lane.

That’s why governments must urgently make progress on the long-envisaged savings and investments union, Lane said in a speech for delivery in Frankfurt, adding to arguments in favour of tighter cooperation among the European Union’s 27 member states.

“The bank-centred financial system of the euro area is not well aligned with the scale and nature of the AI opportunity,” Lane said.

“Bank-based financing is structurally less suited to intangible, long-horizon investments, while alternative channels such as venture capital and private credit are too shallow in the euro area.”

He added that “a deeper and more integrated capital market that can broaden the investor base for intangible-intensive projects, facilitate cross-border risk sharing and reduce the need for bank-based finance” is desirable.

“As such, the growth in AI technology serves to illustrate the urgency of delivering a European savings and investments union,” he said.

The ECB has recently increased pressure on governments to complete the project, which it claims would help address many of the bloc’s most urgent problems.

Lane also believes that artificial intelligence has the potential to boost euro-zone productivity by over 4% within the next decade, assuming adoption continues at a rapid pace. He also warned that a prolonged energy shock could dampen these benefits.

The near-term outlook in Europe has just become gloomier. Last week, the ECB cut their 2026 growth forecast to 0.9% and raised its inflation estimate, citing higher energy costs resulting from the Middle East conflict.

Lane noted that even if AI adoption proceeds more slowly, resembling the internet’s gradual expansion, it could still add at least 1.5% to growth over ten years. “The greatest impact will be achieved if AI significantly accelerates innovation,” he said. Consumer sentiment in the euro area plunged sharply in March as the Middle East conflict drove energy prices higher, increasing pressure on households.

“The four-point drop in March is one of the largest decreases on record, apart from at the start of the pandemic and the Ukraine conflict. Economists’ current assumptions about oil and gas prices suggest household spending will fall, causing GDP to stagnate over the next two quarters.

Later this morning, the flash PMIs from March will be published. They are likely to see substantial downturns from the concerns over the conflict in Iran.

The Euro rallied yesterday, mirroring the fall in the dollar index. The common currency reached a high of 1.1639 and closed at 1.1613.

Have a great day!