Published by Global Banking & Finance Review®
Posted on March 3, 2026
3 min readLast updated: April 2, 2026
Add as preferred source on GoogleUK Finance Minister Rachel Reeves is expected to maintain fiscal discipline in her March 3 Spring Forecast update amid investor jitters over Middle East tensions, rising gilt yields, and uncertain economic forecasts from the OBR.
By William Schomberg and David Milliken
LONDON, March 3 (Reuters) - British finance minister Rachel Reeves said she would provide stability for the economy in a budget update speech on Tuesday that was overshadowed by alarm among investors over the conflict in the Middle East.
Reeves said fresh forecasts showed inflation and borrowing would be lower than previously thought by Britain's fiscal watchdog although its economic growth projections were expected to be cut.
The forecasts may soon be overtaken by the impact of the U.S.-Israeli war against Iran which has sent British government borrowing costs soaring on worries about the global surge in energy prices.
"This government has the right economic plan for our country, a plan that is even more important in a world that in the last few days has become yet more uncertain," Reeves said in her speech to parliament.
"It is incumbent on me and on this government to chart a course through that uncertainty, to secure our economy against shocks and protect families from the turbulence that we see beyond our borders."
She stressed the need for stability in the public finances as well as investment in infrastructure.
Britain has the highest inflation among the Group of Seven economies, preventing the Bank of England from cutting interest rates as quickly as other central banks and saddling the government with a high bill for its inflation-linked bonds.
Government bond yields surged for a second day in a row earlier on Tuesday as investors worried that a doubling of gas prices, if sustained, might prevent the BoE from cutting borrowing costs this year.
Benchmark wholesale gas prices, which make up the largest single portion of Britain's domestic energy price cap, have doubled this week which, if sustained, could push up the next pricing level for the July-to-September period.
Oil prices have also risen 15%, leading to calls from some motoring groups for the government to reverse an end to the fuel duty freeze currently expected in September.
(Additional reporting by Susanna TwidaleWriting by William Schomberg; Editing by Hugh Lawson)
Due to heightened investor anxiety over the Iran conflict and global market instability, Rachel Reeves aims to avoid surprise spending measures and maintain fiscal stability.
Rising global energy prices and bond yields from the Iran conflict could increase borrowing costs, affecting the UK's public finances and exposing the risk of higher debt costs.
Reeves may have slightly more room for maneuver due to recent lower borrowing costs, but ongoing market sensitivity limits her ability to introduce major spending changes.
Risks include a resurgence in inflation-linked debt costs, possible increases in unemployment forecasts, and political pressure to address voter needs, all of which could test her credibility with investors.
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