UK chancellor sounds alarm over economic fallout from war on Iran

UK Chancellor of the Exchequer John Healey has issued a stark warning that the ongoing US-Israeli aggression against Iran is placing mounting pressure on the British economy and government finances, threatening to upend the October Budget.

"What is happening in the Middle East is hitting inflation, it is hitting growth, it is hitting borrowing costs," Healey told the Financial Times, acknowledging that the war is compounding an already fragile economic landscape.

The warning came as government borrowing spiked sharply earlier this week, sending a clear signal that financial markets are increasingly jittery over the inflationary consequences of the escalating conflict in West Asia.

Healey conceded that the crisis extends beyond immediate fiscal metrics, describing the broader geopolitical threat as "part of a more dangerous world that is more uncertain and it is one of the challenges we have to meet in this country."

The chancellor's remarks underscore growing alarm within government circles that the war's economic fallout could erode the fiscal buffer painstakingly built by former Chancellor Rachel Reeves through tax increases and departmental spending cuts.

With Britain already grappling with weak growth and elevated household costs, the reduced financial margin now threatens to severely constrain the government's ability to introduce measures to ease the cost-of-living crisis or fund wider spending priorities.

The economic squeeze has been intensified by Iran's decision to close the Strait of Hormuz—a chokepoint for global energy supplies—to all US and allied vessels following the February 28 aggression.

The terrorist war on Iran has sent energy costs soaring across Europe, with Britain bearing a significant share of the burden.

Israel threatens economic, political response to London as UK mulls sanctions

Far-right finance minister Bezalel Smotrich says Israel will take both political and economic measures in response to potential UK sanctions.

Despite the Islamabad Memorandum of Understanding signed on June 17, which was intended to end hostilities across all fronts, the US has continued its naval blockade of the Persian Gulf in recent weeks and struck multiple locations in southern Iran. Tehran has responded by again closing the strategic waterway to hostile forces.

Healey is due to set out his economic priorities in a major speech on Monday, but the October Budget now looms as a critical test of the government's ability to navigate the converging crises.

In a bid to stimulate long-term investment, the Treasury has changed its fiscal rules, reducing the Green Book discount rate from 3.5 percent to 3 percent to make projects like new schools and roads easier to approve. But economists warn that such measures may prove insufficient if the economic turmoil persists.

As one official put it: "We are navigating through a perfect storm—war, inflation, borrowing costs, and global uncertainty. The Budget will have to reflect that reality."

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