Trump’s trade war put the UK on the back foot. His actual war may break us | Larry Elliott
Britain is confronting a severe energy shock triggered by the Trump‑Iran conflict, threatening to worsen an already fragile economy. The government’s cautious response may fall short as the country faces rising inflation, unemployment and a potential recession.
Britain is now grappling with the most acute energy shock since the early 1970s, a crisis that has been set in motion by the escalating conflict between the United States and Iran. The fallout from this war is already spilling over into the UK’s domestic economy, threatening to push the country into a stagflation scenario that could be more damaging than the pandemic of 2020.
What Happened?
In early 2025, the United States announced a series of tariff hikes on goods imported from the Middle East, a move that was widely interpreted as a prelude to a full‑blown trade war. The tariffs were followed by a sudden halt in the export of oil, natural gas and fertiliser from the Gulf, creating a massive supply shock that reverberated across the globe. The UK, which imports roughly 40% of its food and relies heavily on Middle‑East energy, has felt the pinch most acutely.
Why It Matters
The energy crisis is not just about rising prices; it is a symptom of deeper vulnerabilities in Britain’s supply chains. The country’s heavy dependence on imported energy and food has left it exposed to geopolitical shocks, and the current crisis is a stark reminder of the fragility of global trade networks.
Government Response
Prime Minister Rishi Sunak’s government has promised a “keep calm and carry on” approach, with plans that remain largely vague. While ministers are sending a reassuring message to the public, they are simultaneously signalling to financial markets that any support will be limited and targeted. The Treasury has been reluctant to act aggressively for fear of a bond market backlash, a stance that critics argue is too cautious given the severity of the crisis.
Rachel Reeves, the Chancellor, has indicated that she will scrap plans for an autumn fuel duty increase and provide targeted assistance to the poorest households. She has also hinted at reversing the recent rise in employers’ National Insurance contributions, a move that could ease pressure on the labour market. However, many analysts believe that these measures will not be sufficient to counteract the rising inflation and potential job losses.
Economic Consequences
Britain’s economy was already in a precarious position before the war began. Unemployment had been climbing throughout 2025, and growth had stalled in the final quarter of the year. The sudden supply shock has amplified these trends, leading to higher prices for fuel and food, which in turn reduce consumers’ disposable income and dampen demand for other goods and services.
Businesses are reacting by cutting costs, often through staff reductions. This, combined with a drop in consumer spending, could push the UK into a recession. The International Monetary Fund has warned that the global economy is headed toward higher inflation and slower growth, a scenario that could be particularly damaging for the UK, which is already projected to be one of the worst‑performing major economies in 2026.
Potential Solutions and Challenges
To mitigate the impact, the Bank of England has signalled a willingness to cut interest rates once the temporary spike in inflation subsides. The Bank is also preparing to soften the markets for future rate cuts, recognising that a substantial negative supply shock is looming.
In the longer term, the crisis underscores the need for greater economic resilience. The UK must reduce its exposure to global fossil fuel prices by investing heavily in renewable energy and strengthening domestic food production. The war has highlighted the fragility of global supply chains, and the country must develop a comprehensive plan for economic self‑sufficiency.
What Happens Next?
The outcome of the Trump‑Iran conflict remains uncertain. Even if a ceasefire is brokered within a few weeks, the collateral damage to the global economy could be lasting. The UK’s ability to weather the storm will depend on the speed of the resolution, the effectiveness of government interventions, and the resilience of its supply chains.
As the world watches, Britain’s experience serves as a cautionary tale: a single geopolitical event can trigger a cascade of economic shocks that ripple across the globe. The country’s response will be closely scrutinised by policymakers, investors and the public alike.
Conclusion
Britain’s current energy crisis, triggered by the Trump‑Iran war, threatens to deepen an already fragile economy. While the government’s cautious approach may provide short‑term reassurance, it risks falling short of the decisive action required to prevent a deeper recession. The country’s future will hinge on its ability to adapt, invest in resilience, and navigate the complex interplay of global supply chains and domestic policy.
Why it matters
The crisis exposes the UK's vulnerability to global supply shocks and highlights the urgent need for economic resilience and self‑sufficiency.
Key points
- UK faces severe energy shock due to Trump‑Iran conflict
- Government response is cautious and limited
- Rising inflation and unemployment threaten recession
- Bank of England may cut rates to counter inflation
- Long‑term solutions include renewable energy and food self‑sufficiency
Frequently asked questions
What is causing the UK's energy crisis?
The sudden halt in oil, gas and fertiliser exports from the Middle East, triggered by the Trump‑Iran conflict, has created a massive supply shock.
How is the UK government responding?
The government is adopting a cautious approach, promising targeted support and signalling to financial markets that aid will be limited.
Will the UK face a recession?
Yes, the combination of rising inflation, higher energy costs and job losses could push the UK into a recession.
