Oil prices are climbing again. Trump and Netanyahu’s recent strikes on Iran sent crude soaring, and the UK’s Office for Budget Responsibility just warned that if this carries on, inflation could breach 3% by the end of 2026. The OBR’s David Miles put a number on it: this shock alone could add roughly one percentage point to CPI inflation. Meanwhile, Rachel Reeves is furious. The Chancellor’s already warned energy firms against price gouging during this crisis—and she’s got a point. Let’s break it down.
The Oil Shock Is Real (But Milder Than Ukraine)
Here’s the thing about oil price shocks: they ripple through the entire economy. Right now, crude is sitting around 20% higher than it was before the geopolitical flare-up in Iran. Miles noted the risks are milder than during the Ukraine war, but he also threw in a telling comment: ‘I would have given you a different answer yesterday morning.’ Translation: this situation moves fast, and forecasts can shift on a dime.
The mechanics are straightforward. Higher oil prices feed straight into energy bills, which then drag up the broader inflation basket. The OBR’s calculation is sobering: current oil and gas price rises could add ~1 percentage point to CPI. Since inflation is already hovering near 3%, that’s enough to push it past target.
Rachel Reeves Isn’t Having the Price-Gouging Play
Reeves made her position crystal clear on Monday: energy firms better not use this crisis as cover to rip off consumers. She publicly warned against price gouging—a signal that the government’s watching, and action could follow if companies get too greedy. Watch this space. The Chancellor also acknowledged the oil shock will likely drive higher prices for Britons, but she’s clearly drawing a line between ‘market forces’ and ‘corporate opportunism.’
This matters because energy companies have a track record of padding prices under the guise of global pressures. Reeves is signalling that if they overstep, there’ll be consequences.
The Spending Squeeze Gets Tighter
While the OBR’s focused on the inflation threat, Tom Josephs threw down another uncomfortable number: the government faces a £13bn spending gap by 2029. That’s before commitments on SEND (special education), defence spending (heading toward 3% of GDP), and international aid kick in. Departments facing those commitments will see real-terms expenditure cuts of 4.4% between 2029–2031.
Some departments already squeezed hard at the last Spending Review—Home Office, Foreign Office, Treasury—will feel this most acutely. The OBR also flagged that the government’s falling behind on its linear path to 3% defence spending by 2030. The next Spending Review’s planned for 2027, but the arithmetic is unforgiving.
The Bottom Line
The Iran oil crisis is real, inflation pressures are rising, and the UK’s budget room is shrinking fast. Reeves is cracking down on energy firms to prevent price gouging, but ultimately, geopolitical shocks aren’t something any Chancellor can fully control. What you can control is staying informed—and planning ahead.
FAQ
Could UK inflation actually breach 3% this year?
Yes, it’s possible. The OBR said current oil and gas price rises could add ~1 percentage point to CPI inflation. Since inflation’s already near 3%, hitting above target depends on whether the Iran situation escalates or stabilises.
Why is Rachel Reeves warning energy companies?
She’s signalling the government won’t tolerate price gouging under the guise of global oil shocks. Firms caught overcharging consumers during a crisis could face scrutiny or action—it’s a regulatory warning shot across the bow.
How bad is the £13bn spending gap?
It’s significant. Departments are already stretched thin after previous cuts. A 4.4% real-terms cut between 2029–2031 will force tough choices on public services, especially where new commitments (SEND, defence) clash with budget constraints.
Is this oil shock worse than the Ukraine situation?
No. The OBR confirmed the current geopolitical risks are milder than Ukraine-related shocks. However, even a ‘milder’ shock can still push inflation above target and squeeze households.
When will the government address this budget problem?
The next Spending Review is scheduled for 2027. Until then, expect incremental decisions and a lot of budget pressure on departments that don’t have protected status like defence.
DISCLAIMER
Effective Date: 15th July 2025
The information provided on this website is for informational and educational purposes only and reflects the personal opinions of the author(s). It is not intended as financial, investment, tax, or legal advice.
We are not certified financial advisers. None of the content on this website constitutes a recommendation to buy, sell, or hold any financial product, asset, or service. You should not rely on any information provided here to make financial decisions.
We strongly recommend that you:
- Conduct your own research and due diligence
- Consult with a qualified financial adviser or professional before making any investment or financial decisions
While we strive to ensure that all information is accurate and up to date, we make no guarantees about the completeness, reliability, or suitability of any content on this site.
By using this website, you acknowledge and agree that we are not responsible for any financial loss, damage, or decisions made based on the content presented.
MORE NEWS
Disclosure & Editorial Standards
MJBurrows is not authorised or regulated by the Financial Conduct Authority (FCA). The content on this website — including articles, calculators, and tools — is for general informational and educational purposes only. It does not constitute personal financial, investment, tax, or legal advice and does not take into account your individual circumstances, financial situation, or objectives.
Nothing on this site is a personal recommendation to buy, sell, hold, or otherwise deal in any financial product, asset, or service. You should always conduct your own research and seek advice from a qualified, FCA-regulated financial adviser before making any financial decisions.
Our calculators produce estimates based on simplified models using HMRC-published rates for the current tax year. They cannot account for every individual circumstance and should not be relied upon as exact figures. Tax rules and rates may change — verify current rates with HMRC or a qualified tax adviser.
Projections are not guarantees. Where our tools show future values (investment growth, pension projections, compound interest), these are hypothetical illustrations based on assumed growth rates. Past performance does not guarantee future results. The value of investments can go down as well as up.
Market data displayed on this site is provided by third-party sources including Twelve Data, Yahoo Finance, and CoinGecko. We do not guarantee the accuracy, completeness, or timeliness of third-party data.
This content is designed for UK residents and reflects UK tax rules, thresholds, and legislation. It may not apply to other jurisdictions.
Using this website does not create a professional-client relationship of any kind. MJBurrows is not responsible for any financial loss, damage, or decision made based on the content presented. By using this site, you accept these terms.
This disclaimer may be updated from time to time without prior notice. Last reviewed: 23 April 2026.
MJBurrows is an independent UK personal finance publication, written and edited by Matthew Burrows. There is no parent company, no investor group, and no advertising sales team — decisions about what to cover and how to frame it are made by Matthew alone. Our full Editorial Policy sets out how the site operates in detail.
Commercial model. As of April 2026, MJBurrows generates no revenue. The site carries no display advertising, no affiliate links, no sponsored content, no paid product placements, and no pay-for-coverage arrangements. If this changes in future, it will be disclosed openly on the Editorial Policy page.
Sources. Articles and tools reference primary sources — HM Revenue & Customs (HMRC), gov.uk, the Bank of England, the Office for National Statistics (ONS), the Financial Conduct Authority (FCA), Companies House, and UK government departmental publications (DWP, Treasury). Calculator data uses HMRC-published rates for the 2026/27 tax year. Market data (tickers, asset prices) is provided by Twelve Data, Yahoo Finance, and CoinGecko.
Verification. Every published article is fact-checked before going live. Numerical claims are traced to their primary source, quotes are checked against the original speaker or document, and calculator outputs are tested against HMRC worked examples. See our verification and accuracy policy for the full process.
Corrections. If you spot an error, please report it via the Corrections page. A three-tier severity system commits to specific response times:
- Tier 1 — Urgent (material reader harm, defamatory statements, regulatory or legal issues): acknowledged within 24 hours, page actioned within 24 hours, correction published within 48 hours of confirmation.
- Tier 2 — High (significant factual errors that misinform readers): acknowledged within 3 working days, correction published within 7 working days of confirmation.
- Tier 3 — Standard (minor factual errors, dated references, missing context): acknowledged within 7 working days, correction published at the next regular content review (within the quarter).
Significant corrections are logged on the public Corrections log.
Updates and review cadence. Calculators are reviewed at least quarterly, plus event-driven updates when HMRC publishes new rates (Budget, Autumn Statement, new tax year). Guides are reviewed at least twice a year, with major rewrites whenever underlying regulation changes. Tax-year-sensitive content is prioritised for review at the April tax-year transition.
Get in touch. For editorial enquiries — corrections, story tips, reader questions — the address is contact@mjburrows.com. The contact page is at mjburrows.com/contact. Every email is read personally by Matthew.
