Keir Starmer will chair a Cobra emergency meeting to address the cost-of-living impact of the war in the Middle East, as rising global oil and gas prices threaten to deliver higher household bills, inflation, and interest rates. The conflict has disrupted shipping through the Strait of Hormuz, pushing up prices and prompting forecasts of higher bills. Analysts at Cornwall Insight have predicted that Ofgem’s energy price cap will rise from £1,807 to £1,973 in July. Meanwhile, economists say inflation could rise to as high as 5% this year, having previously been expected to fall back to the Bank of England’s 2% target. While Housing Secretary Steve Reed has insisted there is no need to ration fuel and urged against panic buying, the Government is weighing support measures for households.

Research by global tax firm Ryan suggests firms are set to see significant business rates rebates. Modelling from the Treasury indicates that businesses may receive £1.8bn in rebates due to changes in business rates valuations that come into effect in April. Data for setting the multipliers shows that officials have forecasted a £3.59bn reduction in rateable value due to potential appeals, with this expected to deliver around £1.8bn back to firms. Ryan said 8% of the projected corrections are forecast to take place in the 2026/27 financial year, with 13% a year later. Alex Probyn, principal and practice leader at Ryan, said: “If a large proportion of adjustment is forecast to fall into the next rating cycle, then that has implications for certainty and planning,” adding that business rates liabilities “feed directly into investment and capital expenditure decisions.” It is noted that many sectors anticipate higher bills despite the reduction in the multiplier for tax calculations.

The ongoing Middle East crisis is expected to exacerbate the UK’s financial woes, with economists predicting a £20bn shortfall for the Chancellor, Rachel Reeves. Higher inflation from rising oil and gas prices will lead to increased public sector pay, welfare spending, and borrowing costs. The Institute for Fiscal Studies has warned that public sector pay could rise by £4bn, adding pressure on government budgets. The think-tank’s Nick Ridpath has suggested that the Government would need to boost its budget by around £3bn in 2026/27 to maintain previously-promised real-terms growth. Experts have warned that Ms Reeves may have to increase taxes to balance the books, with Susannah Streeter of Wealth Club saying: “Fresh tax rises do look possible given the Treasury is in an increasingly tight spot.”

The rapid advancement of AI poses significant challenges to the labour market, according to former Prime Minister Rishi Sunak. Citing research which indicates a 16% decline in entry-level job hiring in AI-exposed sectors, the former Chancellor says the need for AI literacy is critical, as it equips workers to automate tasks and enhance productivity. The Government, he argues, must also reform the tax system to support employment rather than hinder it. Mr Sunak says ministers “should be looking to rebalance the tax system: reducing, and ideally removing, taxes on employment and raising that revenue elsewhere.”

Company directors are facing significant tax changes this April, with a 23% rise in the basic rate of dividend tax to 10.75% and a 6% increase in the higher rate to 35.75%. Stephen Relf, technical manager at the ICAEW, has warned that the changes “will hurt.” Business owners may reconsider taking income as dividends due to the increased tax burden, which has risen 30% since 2016, while the dividend allowance has decreased significantly. The Office for Budget Responsibility estimates these changes will generate £1.2bn annually.

A report from Labour Growth Group is set to outline proposals for significant tax reforms and will urge ministers to redesign the tax system to incentivise hard work, with greater incentives for entrepreneurs and small business owners. The draft report proposes cutting income tax and abolishing National Insurance, with it suggested that the reforms could be funded by equalising capital gains tax with income tax, reforming council tax or taxing landowners. Mark McVitie, the Labour Growth Group’s director, told Sky News that the Government must be “laser focused on rewarding work and taking initiative,” but added: “When someone working 60 hour weeks as a nurse or running a small business is paying a higher marginal tax rate than an institutional landlord, that’s not happening.”

Britain’s public finances saw a £14.3bn deficit in February, Office for National Statistics (ONS) data shows, with this exceeding forecasts by £5.8bn. Analysis shows that public sector net borrowing is up £2.2bn year-on-year. Total borrowing over the financial year 2025/26 stands at £125.9bn, with it noted that the Office for Budget Responsibility has forecast a deficit of £133bn for the year. The ONS data also shows that debt interest costs were £5.5bn. PwC economist Nabil Taleb said: “Interest rate cuts are inevitably deferred, inflation now looks set to pick up again, and growth remains subdued,” adding: “That combination risks putting renewed pressure on borrowing and leaves the public finances exposed, underlining just how quickly the fiscal picture can shift.” Highlighting that Government bonds have risen, Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said: “We estimate that increases in gilt yields will cut the Chancellor’s headroom by £7.1bn in 2030/31, if sustained at current levels.”

Rachel Reeves is facing a potential £20bn hole in her spending plans as rising energy prices from the Middle East crisis drive up inflation and government costs, according to the Institute for Fiscal Studies. Higher inflation could increase welfare spending by £2.5bn, add around £4bn through public sector pay pressures, and push debt interest costs up by as much as £10bn, while also eroding departmental budgets in real terms. Although higher inflation may boost tax receipts slightly, economists warn this will not fully offset the surge in costs, leaving the Chancellor with difficult choices on spending, borrowing, or cuts.

Oxford Economics has revised its forecast for economic growth to 0.4% from 0.9% due to the impact of rising energy prices linked to the ongoing conflict in the Middle East. The economic consultancy has warned that elevated oil and gas prices would burden businesses and dampen investment. The 0.4% growth rate predicted by Oxford Economics is less than half of that projected by the Office for Budget Responsibility earlier this month. Investment bank Berenberg, meanwhile, has cut its 2026 growth forecast to 0.6% from 0.9% before the war in Iran. Elsewhere, Deutsche Bank anticipates interest rates will remain at 3.75% for the rest of the year, while Goldman Sachs warns of a potential rate hike if energy prices continue to rise.

KPMG has warned that a surge in energy prices driven by the war in Iran will push UK inflation to a peak of 3.6% in September. The firm’s chief economist, Yael Selfin, said: “Households and businesses will face higher borrowing costs for longer, even as the economy slows.” Before the conflict in the Middle East, the Bank of England had anticipated inflation  – which fell to 3% in January from 3.4% in December – would reach its 2% target by spring. KPMG has also revised its UK GDP growth forecast for 2026 down to 0.7% from 1%.

The Conservatives say Britain is facing a jobless crisis that is costing the economy over £443bn a year in economic output. The Tories attribute this to the proportion of people not in work, noting that the number of Universal Credit claimants has increased by 1.4m since Labour took power. Shadow Work and Pensions Secretary Helen Whately stated: “The true cost of worklessness is the lost opportunity for individuals.” Shadow Communities Secretary Sir James Cleverly added that “more and more people are choosing welfare at the taxpayer’s expense rather than working.” The Department of Work and Pensions countered that the figures are misleading, noting that nearly 80% of the increase in Universal Credit claimants is due to a transition from legacy benefits.

Analysis by Cornwall Insight suggests that household energy bills could increase by £332 annually in July due to rising wholesale prices. The forecast, which looks at Ofgem’s price cap, has surged to £1,973 for typical dual fuel households, marking a 20% rise from April’s cap. This significant adjustment follows the escalation of conflict in the Middle East, which has caused volatility in the energy market. Cornwall Insight has warned that even if prices stabilise, the recent fluctuations will impact the upcoming price cap. It is noted that the Competition and Markets Authority is also investigating heating oil price increases affecting 1.5m UK households.

Financial services firms are increasingly likely to report staff who break the rules to the Financial Conduct Authority (FCA), with companies shown to be flagging misconduct more frequently and quicker. Analysis by legal firm Littler shows that the FCA logged 4,224 cases in 2025, with this a 10% increase from the previous year and double the number from 2021. With high-profile scandals having heightened awareness of the reputational and regulatory risks that can come from ignoring unacceptable behaviour, Littler notes that timely reporting is crucial for maintaining workplace culture and corporate reputation.

Research from Novuna Business Finance reveals that 78% of small business owners in the UK are losing sleep due to economic volatility and rising costs. The study highlights that businesses anticipating growth are particularly affected, with 85% reporting sleepless nights. Concerns about tax and interest rates have surged from 28% to 42% in two years. Worries over red tape have risen from 21% to 30%, with issues around compliance and regulations (25%) and business rates (22%) also highlighted. Joanna Morris, head of insight at Novuna, said: “This data exposes the hidden personal cost behind business resilience.”