Starmer to Hold Emergency Meeting as Iran Conflict Fuels Cost of Living Crisis

Prime Minister Keir Starmer is preparing to convene an emergency meeting with senior cabinet ministers and the Governor of the Bank of England next week, as escalating tensions in the Middle East continue to drive up prices and fuel concerns about the cost of living. The meeting, first reported by City A.M., will focus on potential interventions to mitigate the economic fallout from the ongoing conflict in Iran.

The urgency stems from a confluence of factors. As the conflict enters its fourth week, the potential for wider regional instability is increasing, with a corresponding impact on global energy markets. Average annual household energy bills are already forecast to rise by £332 in July, according to Cornwall Insight, and further increases in the price of diesel and petrol are considered “all but inevitable” by the RAC. These rising costs are compounding existing inflationary pressures and raising fears of a renewed cost-of-living crisis.

The Bailout Debate: Targeted Support vs. Universal Measures

Chancellor Rachel Reeves is reportedly favouring a “targeted” approach to any potential financial support, focusing assistance on the poorest households. This reflects concerns about the cost of a universal bailout, reminiscent of the more than £40 billion package deployed in response to Russia’s invasion of Ukraine. Sources close to Reeves have emphasized a “matter of fairness,” suggesting a reluctance to repeat a subsidy that benefited all households, including the wealthiest.

The debate over the scope of any support package highlights a key tension within the Labour party. While acknowledging the need to protect vulnerable households, Reeves is also mindful of maintaining fiscal discipline and adhering to the party’s borrowing rules. Lisa Nandy, the culture secretary, has reportedly suggested the government may need to “rethink” or relax these rules, but the Treasury has so far insisted they remain “ironclad.” These rules demand that day-to-day costs are met by revenues and that net debt falls as a share of the economy by the end of parliament.

Beyond Energy: Broader Economic Concerns

The impact of the Iran conflict extends beyond energy prices. Soaring mortgage rates are adding to the financial strain on households, with the average five-year fixed-rate mortgage rising from 4.95% at the start of the month to 5.39%, the highest level since July 2024. More than 500 mortgage deals have been pulled by banks this week, reflecting increased uncertainty in the market. Traders are now betting on as many as three interest rate rises this year, reversing earlier expectations of rate cuts, as reported by City A.M.

Food prices are also becoming a growing concern. The potential closure of the Strait of Hormuz, a critical shipping lane, has led to fertiliser shortages and increased transport costs, threatening to further inflate grocery bills. The International Energy Agency (IEA) has already released a 10-point plan for governments, businesses, and households to reduce oil consumption, including measures like working from home and car sharing.

Contingency Planning: Fuel Rationing and Supply Chain Disruptions

Ministers are also reviewing contingency plans to ration petrol and diesel supplies at the pump if the conflict continues to disrupt oil supplies. Under the Energy Act, the government has the power to cap the amount of fuel motorists can purchase and designate specific petrol stations as hubs for emergency and critical service vehicles, such as ambulances. This echoes similar preparations made during previous periods of supply chain vulnerability.

Fatih Birol, IEA executive director, warned that the war in the Middle East is creating a “major energy crisis, including the largest supply disruption in the history of the global oil market.” He hopes the agency’s measures will be useful to governments worldwide in navigating these “challenging times.”

Labour’s Fiscal Position Under Scrutiny

The potential need for a significant energy bill bailout is also complicating Labour’s public finance position. The party has pledged to adhere to strict fiscal rules, but the escalating crisis may force a reassessment of those commitments. The situation is further complicated by the broader economic headwinds and the potential for increased borrowing costs.

The conflict has also prompted external calls for intervention. Former US President Donald Trump has reportedly urged Starmer to support secure the Strait of Hormuz, as reported by City A.M., highlighting the international dimension of the crisis and the pressure on the UK to play a role in stabilizing the region.

The emergency meeting next week will be a critical moment for the government. Starmer and Reeves will need to weigh the economic risks against the political and social costs of inaction, and develop a coherent strategy to protect households and businesses from the worst effects of the Iran conflict. The outcome of that meeting will likely set the tone for the UK’s economic policy in the coming months.