2 March 2026: Reeves must make a strong statement but say nothing

Later this afternoon, BoE deputy Governor Dave Ramsden will make a speech in which he is expected to confirm his hawkish attitude towards cutting rates before inflation is confirmed as being “controlled” and on a path towards the Bank’s 2% target.

Ramsden's views run contrary to those of his committee colleague, Professor Alkan Taylor, who told reporters on Friday that he feels it will be appropriate to make three cuts in interest rates this year, bringing the base rate to 3%.

There may be some hurried adjustments being made to calculations by the economics staff at the Central Bank as they model the likely effect of energy prices of the attacks by the U.S. and Israel on Iran and the potential closure of the Straits of Hormuz which sees a up to 15 million barrels of oil as well as significant amounts of natural gas travel through the narrow strait on its way to destinations globally.

The Prime Minister was a little reticent in a speech he gave yesterday in support of the actions taken by Trump and Netanyahu, but eventually confirmed that he will allow them to use UK bases in the region for refuelling and other tasks. However, there is currently no plan for the UK to take a frontline position.

Up to 70k UK citizens are “marooned” in the region currently, with the UK rumoured to be working with Saudi Arabia to arrange emergency transportation.

Tomorrow, Rachel Reeves will make her Spring Statement to the House of Commons. It may not be as bizarre as her last statement last November. which was leaked in its entirety before she even stood up to speak, but she will want to make a strong commitment to the House without making any new budgetary or spending commitments.

With the loss of a Labour safe seat in last week’s by-election still fresh in her mind and the devolved, mayoral and local elections due to take place in eight weeks, Reeves will need to firmly commit to bringing a level of growth to the economy and taking some responsibility for the mistakes she has made in close to two years in the job.

Sterling opened lower in Asia this morning in response to the situation in the Middle East, but quickly recovered to trade close to Friday's close. The pound is currently trading at 1.3446 (4.00 am).

The U.S. and Israel launched massive attacks on Iran early on Saturday morning, killing the Country’s Supreme Leader and several of his most senior Ministers. There have been celebrations in the streets of Tehran and other large cities as people celebrate the end of a tyrannical leader. Still, there has been no word on the power vacuum that Ali Hosseini Khamenei leaves behind. Officially, the country is mourning the “martyrdom”. Little is known about the Revolutionary Guard's reaction, which is expected to play a major role in what happens next.

Despite the chaos and confusion currently taking place in the upper echelons of Iran’s power structure, Donald Trump has already taken to social media to say that Iran’s new leaders have reached out to him to confirm that they desire new negotiations regarding their nascent but growing nuclear capability.

This is impossible to confirm or deny, as there has been no official confirmation from Tehran about the new Supreme Leader, or even whether that position will be filled under the new Government. The most senior surviving official, President Masoud Pezeshkian, will rule the country in the interim, along with two unnamed officials.

While Khamenei was the undoubted ruler of Iran, the position of Supreme Leader is unlikely to be bestowed on another cleric for many years.

The oil price is expected to surge given the disruption in the area, particularly in the Straits of Hormuz, which remain effectively closed to shipping. A large proportion of global oil and LPG shipments are made through the narrow strait. Trump has so far made no mention of how he plans to keep shipping flowing through what could become a highly dangerous sea lane.

Iran has launched retaliatory strikes against neighbouring countries which have U.S. bases. Dubai, Abu Dhabi, Kuwait, and Bahrain have been hit, while drone attacks and ballistic missiles rain down on Tel Aviv and Jerusalem.

Brent crude, which closed at $67 on Friday, opened up at $80 in Asia this morning on an obvious knee-jerk reaction to the situation and is currently trading at $76 (4.00 am)

This week will see the publication of the February employment report. After the economy created 139k new jobs in January, traders and investors will be interested to see if there is any downward revision to that number and if February confirms a trend for new jobs, which will create a difficult situation for the Federal Reserve, which is unlikely to cut rates even as inflation continues on its journey towards the 2% target.

The dollar index opened a little higher this morning in Asia amid safe-haven flows, but so far has only reached a high of 98.08, from which it has drifted back to its opening level.

On Thursday, Members of the European Parliament from the Economic and Monetary Affairs Committee convened with European Central Bank President Christine Lagarde for their inaugural quarterly meeting of 2026.

In light of the prevailing uncertainties in both the international political and economic arenas, numerous MEPs seized the opportunity to seek insights from Ms Lagarde on the ECB’s strategy for navigating current challenges. At this time, they would have had little idea about what was about to be unleashed by the U.S. and Israel towards Iran.

In her opening remarks, Ms Lagarde asserted that inflation has been effectively managed, attributing this achievement to the ECB’s decisive policy responses. However, she acknowledged that public perception still reflects the belief that prices are rising faster than they actually are, with significant implications for economic decision-making and institutional trust.

She may have to revise her statement in light of what is sure to be higher oil and LPG prices, at least in the medium term. Having negotiated deals to replace Russian gas with gas sourced from Qatar, any disruption in the straits of Hormuz will lead to issues, primarily in the industrial sector, as thankfully, demand for household heating will fall away as the temperature rises.

No European Union involvement in the attacks on Iran has been reported. However, both Germany and France have likely been fully briefed on the actions and, along with the UK, will be concerned about EU nationals who remain in the region either for work or holiday.

The uncertainty that weighed on the French economy following the dissolution of the National Assembly in June 2024, which paralysed business and intimidated investors, appears to be behind it.

Since the start of 2026, a slight but real wind of optimism has emerged in the services and construction sectors, where sustained activity is expected, as well as in aerospace and defence, where order books are full.

The electrical and electronics industries anticipate benefiting from both the rise of artificial intelligence, which requires massive infrastructure such as data centres, and the momentum of decarbonization.

This may be one of many false dawns that have seen France make strides only for its unique political issues drag it back into the mire. However, the President appears to be more in tune with Parliament now, so maybe a new Governor for the Banque de France and a say in the new President of the ECB will set the country on the right path.

The Euro was marginally stronger last week, closing at 1.1816, but the likely disruption from the weekend’s activities may lead to increased volatility, particularly in the first half of this week.

Have a great day!