13 April 2026: Reeves warns war in Iran will ‘come at a cost to British families’

The war in Iran has irretrievably changed the world order, with America no longer trusted to be the “team player it once was. It has also illustrated the fact that the UK no longer has the power or influence it once had, as Trump sees the “special relationship" as a “ one-way street” that he can use while it suits him.

Another fact emerging from the chaos is that the Prime Minister has an inflated view of his influence over the U.S. President. This view has been gradually diminished since the two leaders took control of their respective governments. The UK finds itself having no partners that it can rely on.

Trump will always go his own way, but will only be in power for another two years, while Brexit has seen the UK move away from having a major influence over mainland Europe.

Sir Keir Starmer is trying to gradually heal the damage done by Brexit, but is concerned about how much he will have to give away to improve trade flows between the UK and Europe.

As the talks between the U.S. and Iran falter, the Prime Minister faces a dilemma. On the one hand, the UK has encouraged both sides to "find a way through" their obvious differences while also telling the media that the UK will not be involved in Trump’s plan to block the Strait of Hormuz.

Starmer warned against "further escalation" in the Middle East after the negotiations between the two sides in Pakistan concluded in the early hours of Sunday.

Downing Street said the Prime Minister discussed the talks, which the UK is not involved in, with the Sultan of Oman on Sunday.

The failure to reach a deal has created uncertainty over whether a fragile two-week ceasefire between Iran and the US will hold.

Rachel Reeves is bracing for a fresh round of downgrades as the war in Iran batters the floundering economy.

The International Monetary Fund will slash its global growth forecasts when it publishes its World Economic Outlook in Washington tomorrow, with the UK facing the threat of recession and even a bout of stagflation, in which growth is below or close to zero while consumer prices continue to spiral.

The watchdog's latest health check on the economy will be a bleak read, as the war in Iran has driven up oil and gas prices, triggering an inflation shock that is already hitting households and businesses.

The Chancellor, due to arrive at the IMF's spring meetings in Washington tomorrow, has warned that Britain faces 'significant' economic challenges as a result of the Middle East conflict. Critics point out that the UK was already floundering before the war erupted, with unemployment at a five-year high, inflation at its highest in the G7, and the economy flatlining.

Labour MPs have urged Sir Keir Starmer to put the final nail in the coffin for the Chagos deal after the Prime Minister shelved plans to "surrender" the archipelago.

Labour backbenchers have urged Sir Keir to abandon the plans altogether after it was revealed that legislation to ratify the agreement would be omitted from the King's Speech.

The Government was seeking to ratify the deal, which would see Britain transfer sovereignty of the islands to Mauritius while leasing back the joint US-UK Diego Garcia base under a 99-year agreement.

But a Bill to give the islands away was shelved from the King's Speech after President Donald Trump's repeated attacks.

Last week, Sterling rallied on the back of the announcement of a ceasefire and talks sponsored by Pakistan between representatives of the U.S. administration and the Iranian regime.

It reached a high of 1.3484 and closed at 1.3463, but gains are likely to be pared following the breakdown of negotiations.

Something serious enough to pull the heads of America's biggest banks into a room with the Treasury Secretary and Federal Reserve Chair on short notice happened recently, and it wasn't about interest rates or the war in Iran.

On April 7, Treasury Secretary Scott Bessent and Fed Chair Jerome Powell convened an unannounced emergency meeting at Treasury headquarters in Washington with the CEOs of the country's most "systemically important" financial institutions. The subject was an AI model called Mythos and its potential to transform and destabilise cybersecurity across the global financial system fundamentally.

Citigroup, Morgan Stanley, Bank of America, Wells Fargo, and Goldman Sachs were in the room, Bloomberg reports. JPMorgan's Jamie Dimon was unable to attend.

All the banks represented are classified as globally systemically important, meaning a breach at any one of them could send shockwaves through the international financial system.

Mythos is its creator’s most powerful AI model to date, released on April 7th to a tightly controlled group of technology and finance firms rather than the general public.

While it wasn't designed specifically for hacking, its advanced coding and reasoning capabilities have given it something far more alarming: the ability to find and exploit software vulnerabilities that human security researchers had missed for decades.

According to its design team, Mythos has already identified thousands of previously unknown zero-day vulnerabilities across all major operating systems and web browsers.

Among the discoveries: a flaw in OpenBSD, widely regarded as one of the most secure operating systems available, that had gone undetected for 27 years, and a bug in the video processor that had survived five million automated security tests without being caught.

What makes Mythos especially worrying to regulators is not just that it can find these flaws, but that it can autonomously link multiple vulnerabilities to construct working exploits.

The “next generation” AI tool may well hasten the delivery of a global regulator to deal with such events, but for now, the U.S. wants to “get ahead of the game itself”

FOMC member and San Francisco Federal Reserve President Mary Daly said last week that the U.S. economy is fundamentally in a "good place" despite sharply higher oil prices from the Iran war and uncertainty over how long it will last.

"What we've seen is that consumers are still spending, businesses are still investing," Daly told reporters in Utah last week. "There's a concern that maybe this will push inflation up: that's our job, we'll focus on that. And there's a concern that maybe the labour market isn't as solid, but we're not seeing that; we're seeing it settle at a good place."

Traders who had begun pricing in the prospect of a Fed rate hike to battle an oil-shock-induced bout of inflation again began pricing in a rate cut this year following the announcement of the ceasefire.

Daly did not appear ready to bank on any of that. Her view that the labour market is stable suggests no hurry to ease policy, and her promise to focus the Fed's energy on controlling inflation seemed to run counter to that. She did not speak directly about her view on the appropriate rate path.

"I see the underlying fundamentals of the economy as really in a good place," Daly said. "The question is what's going to happen with the war? How long will prices of oil and gas stay elevated, and what will the knock-on effects be in terms of other goods and services?"

The dollar will doubtless be reactive to the breakdown of talks in Islamabad between the U.S. and Iran this week, but last week the index fell as risk appetite improved. It reached a low of 99.29, but recovered as market scepticism over any dear being reached eased, clambering above the 100 level, closing at 100.18.

Two weeks ago, many economists rolled their eyes when European Central Bank President Christine Lagarde warned that markets were “overly optimistic” that the Iran war wouldn’t trash the global economy.

Lagarde told the Economist: “We are facing a real shock. Probably beyond what we can imagine at the moment.” She worried that there’s a lot the “technical experts” aren’t “telling us in terms” of capacity, extraction, refinery, distribution, because too much has already been damaged and there is no way that it can be restored in a matter of months.”

Few eyes are rolling now. Sure, the global markets are being whipsawed by U.S. President Donald Trump’s threats to unleash “hell” on Iran one moment and then his backtracking the next, kicking the can down the road for another couple of weeks. But Lagarde’s point, about optimism that things can snap back to normal in the Middle East, does indeed seem excessive. Just ask Kristalina Georgieva, who now heads the International Monetary Fund, a job Lagarde held from 2011 to 2019.

As Georgieva told Bloomberg: “The world is facing this shock after it has been slowly growing out of the impact of Covid, and the war in Ukraine: in other words, with depleted policy space,” Georgieva said, noting that few governments have taken meaningful steps to pay down their post-pandemic debt build-ups.

As the war in Iran sends oil prices skyrocketing, the pain will be asymmetrical. “If you are in the proximity of the conflict, the impact on you is more severe,” she said. “If you are an importer of energy, you feel the pain more. And if you have very little or no fiscal space whatsoever, if you have no buffers, you feel it, but your businesses and households feel it even more.”

Georgieva’s message: “Be very careful how you respond to the shock; it’s a very delicate moment.”

After a long and seemingly interminable journey, Greece is now ranked among the best economies in the Eurozone, Georgieva said at an event held ahead of the IMF Spring Meeting, according to a press release from the National Economy and Finance Ministry last week.

She particularly mentioned Greek National Economy and Finance Minister Kyriakos Pierrakakis, noting that his election as president of the Eurogroup confirms that Greece’s credibility has been restored and that it has a stronger presence at the core of European developments.

While referring to the crisis of the preceding decade and the difficult reforms implemented, Georgieva underlined that Greece’s progress is a clear example that political will, commitment, and the ability to undertake tough reforms “pays off” and can lead to a strong recovery.

Spain will publish its inflation data for March today, the First Eurozone member to provide such information since the start of the conflict in Iran. Consumer prices are expected to have risen, but by how much remains unclear.

The Euro reached a high of 1.1739 last week amid continued volatility. It eventually closed at 1.1724 and is expected to see more turbulence this week as global risk factors remain high.

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