1 April 2026: Starmer tries Trump’s “ultimatum” tactic with junior doctors

The war in Iran, which has caused oil prices to skyrocket, is providing the Treasury with an unexpected windfall. Analysis indicates the Treasury's coffers will see a substantial increase as rising conflicts in the Middle East drive energy prices higher, adding about £20 million a day through oil and gas-related levies.

Motorists are bearing the brunt of the crisis, with petrol costs reaching their highest point in 28 months.

The unexpected financial gain has sparked demands for ministers to deploy the funds to protect drivers and households from rising energy costs.

Power generators face additional excess profit levies introduced following Russia's invasion of Ukraine, which could generate hundreds of millions more due to higher wholesale electricity costs.

The RAC estimates that VAT on petrol purchases would generate approximately £2 billion in additional revenue. The TaxPayers' Alliance accused the government of "cashing in on higher energy prices while taxpayers are squeezed".

The Chancellor is most likely to use the extra cash to offset Government borrowing costs, which have also risen substantially since the conflict began.

Meanwhile, the UK economy is showing clear signs of slowing, with increasing pressure on importers and exporters as supply chain disruptions and rising energy costs take effect.

While headline indicators suggest marginal growth, underlying conditions point to a more fragile environment, which is shifting the focus towards control and adaptability, with planning, flexible routing, and improved visibility becoming key to maintaining performance.

The latest PMI data still shows expansion, with the composite index at 51.0, marking 11 consecutive months of growth. However, the pace has slowed, and business confidence has fallen to a nine-month low.

UK GDP was flat in January, with three-month growth of 0.2%, reflecting a continued slowdown rather than a contraction. More recent data suggest that the goods sectors are losing momentum, but activity remains just about in expansion territory.

Manufacturing output in March approached contraction, while overall activity continues to grow, indicating a prolonged period of expansion. Demand patterns are becoming more selective, with some buyers delaying orders due to cost pressures, while others are maintaining or even increasing purchasing to secure supply.

Export demand remains variable, but persists. Some manufacturers reported slight rises in overseas orders, partly driven by customers bringing forward purchases and stockpiling to reduce potential future disruptions.

This indicates that the market is not weakening evenly, but rather becoming more vibrant, with areas of resilience alongside more cautious spending.

One could be forgiven for feeling that domestic issues are being overshadowed by geopolitics. Still, yesterday the Prime Minister tried to use the U.S. President’s tactic by issuing an ultimatum to junior doctors who have voted for a six-day strike starting next week in support of their ongoing campaign for a pay deal.

Starmer has told the British Medical Association, which represents the doctors, that if they do not call off their action, it will place the commitment to provide 1000 new positions in jeopardy. The BMA has reacted by revealing that its members have voted to continue, and it is now polling senior consultants about a strike, which would be a significant escalation of the situation, leaving Health Minister Wes Streeting frustrated and angry.

Sterling rallied yesterday after five days of falls, although its trend remains weak. It reached a high of 1.3264 and closed at 1.3228.

President Trump was severely critical of the role being played by the UK and other NATO members as a Kuwaiti oil tanker carrying millions of barrels of crude oil was hit and destroyed by an Iranian missile.

Holding an impromptu press conference outside the White House yesterday, Trump told his allies, "The US won't be there to help you anymore", as he again criticised European nations for their refusal to provide more military support for the Iran war. He said that countries that have stood on the sidelines for too long will have to “come get their own oil”.

Defence Secretary Pete Hegseth says the coming days will be "decisive" and Iran should "cut a deal" with the US. Following up on Trump’s message, Hegseth told reporters that the U.S. is no longer making the Strait a strategic goal of its actions in Iran, since it imports little energy sourced via the crucial waterway.

But Iran's Revolutionary Guard has threatened to target US tech companies in the region, telling their employees to stay home to save their lives.

Given the current rhetoric from both sides, it is hard to imagine that any meaningful talks have taken place.

The national average price for a gallon of regular unleaded gasoline has topped $4 for the first time since 2022.

That price level is relative: A $4 gallon of petrol would be welcome in California, Washington state, or Hawaii, where the state averages run in excess of $5 per gallon; while residents of other states, where the cost of living is lower, are paying under $3.50 a gallon at the pump.

Trump still has no firm exit plan for a war that has not gone his way since day one, five weeks ago, while Hegseth must be frustrating the Joint Chiefs of Staff with his continual gung-ho comments, which bear no relation to what is happening on the ground. It must be becoming clear that regime change in Iran is not going to be achieved without a long, arduous campaign by the U.S. that will almost certainly need “boots on the ground”.

Job openings fell, and hiring slowed notably in February, pointing to cooler labour demand before the war in Iran triggered additional uncertainty.

Vacancies decreased to 6.88 million from an upwardly revised 7.24 million in January, which was the highest since May, according to Bureau of Labour Statistics data released yesterday. The median estimate in a Bloomberg survey of economists expected 6.89 million openings.

After a pickup in openings at the start of the year, the slowdown in hiring and vacancies indicates employers are proceeding cautiously after a year of near-zero job growth. Looking ahead, the war-driven surge in oil prices risks pushing up operating costs for companies and impeding further hiring.

The pullback in openings was driven by declines in accommodation and food services, healthcare and social assistance, and manufacturing.

The hiring rate declined to its lowest level since April 2020 amid pullbacks in construction and leisure and hospitality, which may have been partly driven by severe winter weather during the month. Business and professional services hiring also weakened.

The dollar index edged slightly lower yesterday, posting a small daily decline rather than the major moves that currently characterise the market. There remain several themes which are adding to volatility. Reports of potential de‑escalation in the Middle East helped risk assets and reduced safe‑haven demand for the dollar. Observers and analysts noted that the dollar was “holding a decline” amid optimism about a ceasefire, although nothing material has yet emerged.

The index fell to a low of 99.81 and closed at 99.88.

European Central Bank Executive Board member Isabel Schnabel issued a significant monetary policy signal yesterday, indicating that policymakers cannot rule out an interest rate increase at their April Governing Council meeting. This represents a notable shift in the ECB's communication, which had previously maintained a more cautious approach to further tightening measures.

Financial markets reacted immediately to Schnabel’s comments during her appearance at the Bundesbank’s annual conference. As a result, traders increased their bets on further ECB policy tightening.

Specifically, money market pricing now indicates a 40% probability of a 25-basis-point hike in April, up from just 25% earlier this week. Additionally, European government bond yields rose across the curve following her remarks.

Schnabel highlighted that recent inflation data continues to show persistent concerns in core price pressures. She pointed out that services inflation remains particularly persistent, staying around 4% annually despite previous policy measures. Additionally, wage growth continues to outpace productivity improvements, exerting ongoing inflationary pressures. This was in stark contrast to her more recent comments in which she counselled a more cautious approach to rate hikes.

European Central Bank Governing Council member Fabio Panetta continued a slightly less hawkish stance, stating that officials must not let war-driven inflation trigger excessive wage increases, while also warning against an overly strong response.

During remarks yesterday in Rome, the Governor of the Bank of Italy told his institution’s annual shareholders' meeting that fallout from the Iran crisis risks lasting longer than any current hostilities in the Middle East.

A highly uncertain environment is taking hold and is likely to persist beyond the immediate phase of the conflict,” Panetta said. “It will be crucial to closely watch expectations and prevent a wage-price spiral, while ensuring that monetary policy measures remain proportionate and aligned with the ECB’s mandate.

The current debate takes place amid the most aggressive ECB tightening cycle in its history. Since July 2022, the central bank has increased its main refinancing rate from 0% to 4.5%. This marks the fastest pace of monetary policy normalisation since the ECB was established. Past tightening cycles have usually progressed more gradually over several years.

Market analysts note several key differences between current conditions and previous cycles.

For instance, the ECB now operates with a considerably larger balance sheet after years of quantitative easing. Furthermore, the transmission of monetary policy has evolved due to structural changes in European banking and financial markets. These factors make it more challenging to assess appropriate policy settings via data dependence.

The Euro gained strength against both the dollar and the pound after Schnabel’s remarks emerged. It rallied to a high of 1.1563, closing at 1.1553, while Sterling fell against the Euro to a low of 1.1439, closing at 1.1450.

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