17 March 2026: Keir Starmer’s survival depends on keeping Red Ed happy

The rise in oil and gas prices caused by the war in the Middle East has led to production costs at British factories rising at the fastest pace since Black Wednesday in 1992, according to closely watched data published yesterday.

Growth across the UK’s private sector “slowed to a crawl” over the past month due to subdued demand amid fears of interest rate hikes, a renewed surge in inflation, and supply chain disruptions.

The data, provided by S&P Global as part of its monthly flash purchasing managers’ index (PMI), highlighted that the UK might be heading towards another inflation crisis that will constrain already weak economic growth.

Economists have warned that inflation is on track to exceed 5% this year if global energy prices remain elevated.

The effective closure of the Strait of Hormuz since the conflict began nearly a month ago has disrupted supply chains, causing oil and gas prices to rise and issuing warnings of shortages of essential components used in industrial and agricultural production.

Output growth across manufacturing and services has slowed significantly as companies attributed lost business directly to the events in the Middle East, whether through increased risk aversion among customers, rising price pressures, higher interest rates, or disruptions to travel and supply chains,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.

Bank of England Chief Economist Huw Pill warned that the MPC cannot allow “the fog of uncertainty” to prevent it from addressing any resurgence in inflation caused by the war in the Middle East.

Pill, speaking yesterday, said that risks to the Bank of England's ability to control inflation are “mounting” and argued that concerns over structural changes to the economy warrant a cautious approach.

“The fog of uncertainty in which we often operate cannot be an excuse for inaction,” he said in a speech in Skopje, North Macedonia. “I don’t think we can let those uncertainties paralyse us.”

Pill’s comments come after the BOE last week signalled it may need to raise interest rates to tackle a spike in inflation caused by turmoil in energy markets. Pill repeated the language he used on Thursday that fuelled market bets on hikes, saying he stands “ready to act” to tackle any jump in inflation.

While Pill is one of the more hawkish officials at the BOE, some of the Bank’s dovish rate-setters also indicated a willingness to hike borrowing costs to stop a feedback loop in prices. It has prompted traders to price in two quarter-point rate hikes and a strong chance of a third by the end of the year.

Pill said there are limits to the Committee’s ability to “dampen volatility” in the short-term, meaning it must focus on the threat posed by second-round effects to inflation.

A different view was expressed by the Financial Times. A majority of economists polled by the paper believe a weak economy may prevent the energy shock from fuelling a persistent rise in inflation.

Many economists do not believe that the BoE will be forced to raise interest rates this year, even though traders have rushed to price in higher borrowing costs over the past two weeks.

Out of 15 economists contacted by the paper this week, more than half said they expected the rate to remain at 3.75% for the rest of the year unless there is more significant disruption.

This only goes to prove that there is likely to be continued market volatility in the coming weeks as a solution to the conflict is sought.

The pound again touched the 1.3430 level yesterday before further selling pressure drove it back, closing at 1.3410.

It is difficult to determine the reasons behind Donald Trump's pause in his threat to “demolish” Iran’s energy infrastructure, given the record of both sides manipulating the truth to serve their interests. The only discussions Trump has had this week may be with Gulf Cooperation Council members who have warned against escalating the conflict, fearing Iranian retaliation targeting their desalination plants.

GCC nations depend on desalination for 70–90% of their municipal water supply and produce approximately 40% of the world's desalinated water. Major users include Kuwait and Oman (90%), Bahrain (85%), and Saudi Arabia (70%), with total annual production surpassing 7.2 billion cubic meters.

Such actions by Iran would devastate the economies of key U.S. allies and likely prompt direct retaliation, especially from Saudi Arabia, which possesses the largest and most advanced military in the region outside Iran itself.

The financial market “took the bait,” which was probably Trump’s intention, showing less volatility; however, as the deadline for the ultimatum approaches, it is likely to increase again if no further progress is made.

Despite Trump’s promise, both U.S. and Israeli aircraft continued attacking military targets throughout Iran yesterday.

U.S. factory production increased marginally in February as manufacturing remained constrained by tariffs on imports, and the conflict in the Middle East could raise operating costs.

Other data published yesterday showed sentiment among single-family homebuilders nudging upwards in March. Manufacturing and the housing market have been hardest hit by higher interest rates and President Donald Trump's sweeping tariffs, with business leaders and builders saying the duties have increased costs.

Federal Reserve Chair Jerome Powell said yesterday that there is “concern” among FOMC members over troubling trends in the U.S. job market.

While the unemployment rate remains low at 4.4%, the Bureau of Labour Statistics reported a loss of 92,000 jobs in February, while December and January’s job gains were revised down by 69,000.

Powell said members of the Federal Open Market Committee were troubled by those findings.

“The thing that I think a good number of members of the committee are concerned about is just the very, very low level of job creation,” Powell said.

“If you adjust what has been the trend in job creation over the past, let’s say, six months, for what we think is the overstatement due to overcounting, effectively there’s zero net job creation in the private sector,” he added.

Powell is in no way reacting to the President’s continuous haranguing of him, but is continuing as he always has, reacting to the data that passes across his desk.

The dollar index “took a breather” yesterday as volatility noticeably decreased. It rallied to a high of 99.62 but fell back, closing at 99.23.

Soaring oil and gas prices are likely to become more deeply embedded in the wider economy more quickly than they did during the 2022 energy crisis, Dutch Central Bank Governor Olaf Sleijpen said yesterday.

The Dutch member of the ECB's Governing Council said he and his colleagues will receive more information at their April meeting regarding second-round effects, which occur when companies raise prices to offset higher input costs and employees seek higher wages.

"We can't ​control oil and gas prices, but we can act if ​we see second-round effects. I think we will have more information on that front in April," he said in reference to the ECB's ​next rate-setting meeting on April 30.

Sleijpen said that in 2022, when the start of the war in Ukraine drove up energy costs, the economy had been experiencing low inflation, so it took people longer to adjust to the price increase and realise its impact on their purchasing power.

"Everybody is ​more alert ​now, so the ⁠shock can more easily ripple through the economy," he said in comments to reporters in Amsterdam.

He went on to say that inflation expectations and producer prices would be key indicators for the ECB during the April meeting, but he added that the data would still be incomplete. "It will be limited, but we will have to work with it," he said. "The complete picture will not have emerged between last week and the end of April."

Christine Lagarde, the European Central Bank president, drew parallels between the 1920s and the 2020s in an interview with a leading fund manager.

Lagarde, ranked by Forbes as the world’s second-most powerful woman, discussed her global outlook with Nicolai Tangen, who manages Norway’s sovereign wealth fund, the world’s largest, with $2 trillion in assets.

Tangen invited her onto his regular podcast that dropped on Tuesday, and the jumping-off point was Lagarde’s analogy of the present era with the 1920s, when the combustion engine and manufacturing played the roles now occupied by the development and introduction of artificial intelligence.

A century ago, the world order failed to address geopolitical fragmentation and the destabilising impact of new technologies, resulting in the epoch-defining financial crisis of 1929, which in turn paved the way towards the Second World War.

Lagarde’s warning is that if the governments fail to put “the onus on diplomacy rather than war” and fail in “good financial management of public budgets”, history will repeat itself.

Lagarde began her term as ECB president in 2019 and is set to remain in that post until her term ends officially in Oct. 2027. There have, however, been recent rumours that she might consider stepping down ahead of time.

During her term in office, she’s had to deal with Europe’s well-advertised vulnerabilities, most notably in energy dependence and the demographic challenges of an ageing society.

The Euro joined in the general fall in volatility yesterday. It fell to a low of 1.1557 but quickly recovered, closing only marginally lower at 1.1607.

Have a great day!