11 March 2026: Reeves defends her plans to hike fuel duty

UK inflation could be on track to end the year at around 3 percent if oil and gas prices stay at their current high levels, a senior official from the government’s budget watchdog has said.

David Miles, the top economist at the Office for Budget Responsibility, said that while the watchdog had forecast inflation to subside from 3 percent at present to about 2 percent by the end of the year, the energy crisis could threaten that outlook. Gains in energy prices to date were nothing like as large as those that followed Russia’s full-scale invasion of Ukraine. However, they could still deliver a significant and “completely unwelcome” hit to the economy, Miles told MPs on the Treasury select committee yesterday.

The UK is a significant importer of oil and gas: there are nothing but negative effects from those prices being higher,” he added.

Miles was speaking after the Chancellor had accused petrol retailers and heating oil companies of “price gouging” as she sought to deflect calls for a costly state intervention to hold down UK energy prices.

Reeves insisted that the government’s priority was to stop companies from exploiting the crisis in the Middle East to “rip off” their customers, alongside working with allies to “de-escalate” the War.

However, the UK seems to be out of sync with the EU. Listening to comments from German Chancellor, Friedrich Merz, and seeing the actions of the French President Emmanuel Macron this week and following the eventual departure of HMS Dragon for the Eastern Mediterranean yesterday, the EU’s two largest economies are supporting the efforts of the U.S. and Israel to bring about regime change in Iran

Reeves’ comments were an attempt to fend off calls from the Conservatives and Reform UK to reverse a planned rise in fuel duty from September after a 15-year freeze. Instead, the Chancellor aimed at what she claimed were irresponsible businesses.

“This government will not tolerate price gouging,” she said. “Yesterday some petrol retailers were charging almost 180p a litre while others charged less than 130p a litre,” she said, adding she would be meeting companies this month “to get prices down at the pumps”.

The British economy entered 2026 with a shaky jobs market, sluggish growth, and significant political uncertainty.

Yet there was one significant bright spot at the end of the tunnel: inflation was dropping faster than expected, gilt yields were falling as a result, and the Bank of England rate was expected to follow, with two rate cuts already priced into interest rate markets.

That tailwind had a good chance of at least offsetting, if not fully countering, the wider economic jitters.

The Iran war has disrupted everything. The near-closure of the Strait of Hormuz is driving up energy prices and, notably, fertiliser costs. The longer this persists, the more likely it becomes that the light at the end of the British economic tunnel is actually traffic heading in the opposite direction.

Energy prices are the immediate and obvious problem. The oil price, as measured by Brent crude, has shot up to over $100 a barrel. At the start of the year, it was just above $60. So filling your car will get more expensive, and those of you in the countryside who are reliant on heating oil will have noticed a big jump in your prices already.

The Chancellor has her work cut out for her to turn the overall economic situation around, with few willing to bet she can pull it off. The rate cut already “inked in” for next week is almost certainly off the table, with the Bank of England likely to take a more hawkish view of monetary policy.

The pound declined yesterday as the markets reacted to poor economic data, in particular, the like-for-like retail sales numbers were nowhere near as strong as the market had expected. Sterling fell to a low of 1.3412 and closed at 1.3417.

Federal Reserve Chair nominee Kevin Warsh will meet this week with the Republican Senator who has been obstructing his nomination in objection to President Donald Trump’s attacks on the Fed.

Warsh will meet with Sen. Thom Tillis of North Carolina, the senator’s office said on Monday. Warsh will also meet with Sen. Kevin Cramer, another senator who opposes Warsh’s confirmation while the threat of indictments hangs over current Fed Chair Jerome Powell.

The Senate Banking Committee, where both Cramer and Tillis are members, oversees nominees to the Fed. Meetings with other committee members are expected this week.

Tillis has praised Warsh’s acumen as a potential Fed chair but has said he won’t vote to confirm any Central Bank nominees until the Department of Justice drops a criminal investigation into Chair Jerome Powell. Powell has described the probe as a pretext to punish him for refusing to cut interest rates on Trump’s insistence.

Warsh didn’t immediately respond to a request for comment.

Powell’s term as chair ends on May 15, though he can continue to serve in the board seat on the Fed he also occupies until January 2028.

Senate Minority Leader Chuck Schumer yesterday called President Trump’s recent claim that Iran has Tomahawk missiles that it used on a girls' school, killing over 100 civilians, “beyond asinine.”

“He claims that Iranian Tomahawk missiles were responsible for the bombing of an all-girls school that killed 170 people, including many children,” Schumer said on the Senate floor. “Iran doesn’t have Tomahawk missiles, Donald Trump!”

“The claim is beyond asinine,” the senator continued. “Again, he says whatever pops into his head, no matter what the truth is. And we all know he lies, but on something as formidable as this, it’s appalling. No other leader in the administration, not even Pete Hegseth, who does whatever Trump wants, is claiming Iranian missiles did this.”

Trump and his administration are trying to support the energy market, but traders are beginning to see through their attempted hoax. On the one hand, Trump is trying to calm global markets by saying that the war is close to its conclusion, while Defence Secretary Pete Hegseth told reporters that yesterday would be the most brutal of the conflict so far. While it is true that Iranian drone and missile strikes on its neighbours have lessened in their intensity, there remains confusion about exactly what America and Israel’s baseline objective is.

Meanwhile, the dollar remains in a relatively tight range. Yesterday it eased to a low of 98.59 but later rallied to close at 98.93.

Two members of the ECB’s Governing Council called for patience in assessing the medium- to long-term effects of the conflict that continues to rage in the Middle East. The Governor of the Lithuanian Central Bank, Gediminas Simkus, and his counterpart from Estonia both expressed their concern about energy prices. Still, each called for patience while the ECB’s analysts model the effects and whether they are likely to be transitory.

Both nations are benefitting from lower interest rates that have given their economies a boost, although inflation in both is currently uncomfortably high, particularly compared to the Eurozone average.

“The problem here is that Central Banks cannot fix the root problem, but they can use monetary policy to either support the economy or slow inflation. If this negative supply shock persists, it could slow growth while pushing inflation higher. But if the Central Bank responds by raising interest rates, it would almost certainly trigger a recession”, Simkus commented.

Estonia’s Muller said the chances of an interest-rate hike have increased recently, but officials should not react hastily to the war in Iran and its consequences. “The probability of the next change in the policy rates is now more inclined towards an increase rather than the opposite,” the Estonian official told an event on Tuesday in Vilnius.

“That has probably risen in the last couple of weeks.” At the same time, the ECB should not “rush into any decisions,” he added. “We should first see if this rise in energy prices that we are now experiencing is temporary or not.”

Speaking at the same event, Lithuanian Simkus also warned against rash action by the ECB, which will next set interest rates on 19 March.

“Stay calm, don’t overreact because things are developing,” he said. “If these developments were to last, or spread, it would have implications not only for inflation but also more broadly for the Middle East and Europe.”

Addressing reporters later in Vienna, Austria’s Martin Kocher adopted a similar tone, stating it’s better to be “cautious” and observe how the situation develops. He reiterated that the ECB retains “full optionality in both directions.” “We need to set rates so that inflation does not become entrenched,” Kocher said. “This now depends on the situation in the Middle East, but the ECB is prepared to react swiftly and decisively.”

It says a lot about the ECB’s thinking when barely a comment has been made about the threat to output and growth, which contrasts greatly with speeches made since last week by members of the FOMC in the U.S.

The ECB has a feast-or-famine approach to monetary policy. There is either a deepening crisis, always involving inflation, or, at times, such as now, no forward-thinking around creating safeguards for the economy.

European Central Bank President Christine Lagarde urged global leaders to adopt a “basic code of conduct” to work together, a time when technological innovation requires cooperation and geopolitical fragmentation carries high costs.

Lagarde said the crumbling world order, alongside the rise of artificial intelligence, recalled the 1920s, when groundbreaking technologies emerged just as the fallout of World War I poisoned global financial relations.

“We cannot repeat the errors of the 1920s, treating technology and geopolitics as separate tracks until they inevitably collide,” she said in a speech in Bologna, Italy. “Or we can embrace layered cooperation, recognizing that in an era of systemic uncertainty, the most robust strategy is resilient integration.”

The Euro attempted to break above its recent high yesterday but ran into more selling interest at elevated levels. It reached a high of 1.1667 but fell back to close at 1.1611.

Have a great day!