The Iran war could reignite the cost of living crisis for months, Sir Keir Starmer warned on Monday.
The Prime Minister led an emergency Cobra meeting on Monday night to discuss the impact of the conflict on inflation and energy bills.
In a sign of concerns about the fallout for the wider economy, the meeting in Downing Street was attended by Bank of England Governor Andrew Bailey.
The PM earlier warned MPs that he did not want to offer the ‘false comfort’ of suggesting the war would have a ‘quick and early end’, despite Donald Trump‘s claims to be working on a deal with ‘the leadership’ in Tehran.
And Sir Keir revealed that ministers were already drawing up contingency plans to offer targeted help on energy bills next winter. Asked how long he thought the crisis would last, the Prime Minister told the liaison committee: ‘It’s hard to answer that question, if I’m honest.
‘I think all our focus and energy has to be on swift de-escalation, but we’ve got to plan on the basis that it could go on for some time. Since the conflict started, I’ve been really clear with the team that we mustn’t fall into the sort of false comfort of thinking that there will necessarily be a quick and early end to this.’
Chancellor Rachel Reeves will update MPs on Tuesday on measures to strengthen the competition authorities to prevent profiteering, along with proposals to speed up the construction of renewable and nuclear energy.
But sources ruled out an immediate bailout for families and businesses struggling with rising bills.
Keir Starmer led an emergency Cobra meeting on Monday night to discuss the impact of the conflict on inflation and energy bills
The head of the International Energy Agency said the impact of the closure of the Strait of Hormuz could be worse than the two oil shocks of the 1970s
And Sir Keir played down the prospect of the kind of blanket support scheme introduced following Russia’s full-scale invasion of Ukraine in 2022.
Oil and gas prices were in turmoil on Monday before Mr Trump suddenly claimed to have agreed a five-day ceasefire on attacks on energy targets with Tehran.
But experts fear that, with Iran terrorising shipping in the Gulf, energy prices could remain high for months.
The head of the International Energy Agency said the impact of the closure of the Strait of Hormuz could be worse than the two oil shocks of the 1970s and the gas shortage that followed Russia’s invasion of Ukraine.
Fatih Birol, executive director of the agency, said the situation was ‘very severe,’ adding: ‘Many of us remember the two consecutive oil crises in the 1970s. At that time, in each of the crises, the world lost about five million barrels per day – both of them together, ten million barrels per day. As of today, we have lost 11 million barrels per day – more than two major oil shocks put together.
‘No country will be immune to the effects of this crisis if it continues to go in this direction.’
Sir Keir stressed household energy bills will fall next month and then be capped until the end of June. Analysts Cornwall Insight forecast the energy price cap could then jump by £332 in July.
The PM suggested the Government may then step in and offer help to some families struggling with bills. But he said ministers were also working on ways to offset a potential further rise in bills in October, which could have a crippling impact on people trying to stay warm next winter.
Interest rates on 10-year gilts were spiking again this morning as concerns rise
The blue-chip FTSE 100 has continued its plunge, having lost more than 1,100 since the end of February
However, he suggested the country could no longer afford the kind of support introduced by the Conservatives in 2022, which capped energy bills, but cost taxpayers around £40billion.
‘I’m acutely aware of the state of public finances,’ he said. ‘There are difficulties because we don’t know the extent of the challenge we’re facing because we don’t know when this conflict is going to end, but we are actively looking at what measures we can put in place.’
Sir Keir said ministers were looking at possible support for businesses whose bills are not covered by the energy price cap. Some firms face a 40 per cent hike in standing charges by next week.
The PM said the Chancellor will give the Competition and Markets Authority ‘further teeth’ to root out profiteering.
She will also announce plans to underwrite ‘critical’ energy security projects to prevent them grinding to a halt if they face legal challenges.
Ms Reeves will insist that ‘the blockers’ should not be allowed to prevent action to wean Britain off oil and gas.
