British economists warn that a potential war with Iran could cost UK Chancellor Rachel Reeves around £8 billion annually. This warning comes amid the negative effects of the conflict on inflation rates and economic growth in the United Kingdom.
According to the Institute for Public Policy Research (IPPR), the continuation of war and tensions in the Gulf region, especially if navigation through the Strait of Hormuz is disrupted, could push inflation in Britain to around 5.8% due to the sharp rise in oil and gas prices.
Details of the Situation
The institute clarified that these developments would lead to a significant increase in the burden of servicing the UK public debt, as more than a quarter of the government debt, which amounts to approximately £3 trillion, is linked to inflation rates. This means that interest payments will automatically rise as prices increase.
The report indicated that potential losses also include a decline in tax revenues due to weak economic growth, predicting that the total cost to UK public finances could reach around £32 billion by 2030, as reported by the British newspaper (Telegraph).
Context and Background
Amid the successive crises facing the UK, this warning comes at a sensitive time, as economic growth is expected to slow to just 0.3% if the crisis continues. This situation increases the pressure on the UK government and the central bank.
The institute urged the government to take urgent action to mitigate the crisis's impact on households, including reducing fuel tax by 10 pence per liter and capping household energy bills at £2,000 annually. The report estimated the costs of these measures at around £5 billion.
Consequences and Impact
These measures are expected to help contain inflation and reduce the need for sharp interest rate hikes. In this context, the Bank of England kept interest rates at 3.75% last week, with warnings of a potential increase again next year if inflationary pressures from the war persist.
The Institute of International Finance also noted the rising costs of borrowing for the UK government since the end of February, with yields on ten-year government bonds exceeding 4.9% compared to about 4.2% before the outbreak of the war.
Impact on the Arab Region
The repercussions of this war extend beyond the UK, as it could affect the stability of the Arab region in general. Tensions in the Gulf could lead to rising oil prices, impacting the economies of oil-dependent Arab countries.
Moreover, these crises could exacerbate economic conditions in other countries in the region, increasing the challenges faced by governments in dealing with economic and social crises.
In conclusion, under these circumstances, the UK government must take effective steps to address the increasing economic challenges, while keeping an eye on developments in Iran and the Gulf.