UK must be prepared for a price shock from the Iran war | Heather Stewart
Donald Trump’s assault on Iran and the deadly conflict it has unleashed is grim and unprecedented – but there is a familiarity to its economic consequences: brace yourself for another price shock.From the Covid shutdown and subsequent reopening to Russian tanks rolling into Ukraine, the global economy has been rocked by one cost surge after another.Meanwhile, the climate crisis means more volatility in the cost of commodities whose production is vulnerable to extreme weather events – coffee, cocoa and olive oil.The reaction to Trump’s Operation Epic Fury in the energy markets was initially relatively restrained.On Friday, though, with the critical strait of Hormuz effectively closed, and reports of production cuts in Kuwait, the dam seemed to break, pushing oil to $90 (£67) a barrel.
Oil shocks are especially painful because of the commodity’s wider uses, not least in fertiliser, and the knock-on effects for manufacturing and transport,And poorer people are hit hardest,Recent research published by economists at the University of Massachusetts Amherst identified energy, along with food and agriculture as among the commodities that had “a disproportionate capacity to increase inequality when their prices rise”,Where there are benefits, these are narrowly shared,Another striking recent paper showed that after the 2022 oil price surge in the US, 50% of the windfall benefit from higher prices in the sector went to the wealthiest 1% of individuals, via the stock market.
The bottom 50% of people received only 1%.As Gregor Semieniuk, the lead author, puts it: “While everybody is bearing the inflation costs of an energy price crisis, which drove inflation in 2022, the very prices that are causing this inflation are also giving extraordinary profits to mostly a small minority of very affluent shareholders.”In the UK – unlike the US, a net oil importer, where the impact of higher prices is therefore unambiguously negative – the impact of the Middle East conflict has already added 3p to the cost of a litre of unleaded, according to the RAC.If the jump in the cost of gas proves sustained, household energy bills could rise sharply when the next quarterly price cap takes effect in July – just as Labour was trumpeting its plans to reduce household costs.Ministers are already thinking about how they might protect consumers.
It is the latest stark reminder that hiving off the job of tackling economy-wide inflation to central banks, and letting the market sort out the rest, is becoming less and less viable in this volatile world,Even Liz Truss tacitly admitted as much, when she brought in the energy price cap in 2022 – a surprisingly statist policy for an avowed free marketeer,With or without government action to keep a lid on utility bills, a fresh oil shock is a nightmare for central bankers everywhere, especially in the UK,They can in theory “look through” supply-side shocks, such as rocketing energy prices, which tend to be inflationary in the short-term but ultimately depress growth and inflation, as consumers cut back spending elsewhere,Alan Taylor, a dovish independent member of the Bank of England’s monetary policy committee, made that point in a recent speech.
“Large energy shocks move faster than inflation-targeting central banks can respond,” he said, adding: “Central banks and their mandates can never fully solve every type of inflation problem, including the big shocks of recent years.”Yet the prospect of a fresh surge in economy-wide inflation, just as it was set to return to the 2% target, is likely to prompt the divided MPC to hold off from further rate cuts.So we may now face a grim few months in which the Bank sits on its hands, as unemployment continues to climb with young people bearing the brunt.Recent research by Joseph Evans and Carsten Jung of the Institute for Public Policy Research highlighted the risks, in particular to workers, of running the economy “too cold for too long” – slowing it down too much to tackle inflation.Shocks such as these are expected to keep rocking the heavily indebted and import-dependent UK economy in a world with fracturing geopolitics and a raging climate crisis.
That may eventually mean rethinking the monetary policy framework.Economists at the London School of Economics’ Grantham Research Institute have mooted “adaptive inflation targeting”, for example, which would allow for more leeway in times of repeated shocks.However, politicians will increasingly have to look beyond monetary policy, too: acting to secure supplies of key commodities, protecting the poorest from the worst of the onslaught, and cracking down hard on the price gouging that tends to take place in these tight spots.In the energy sector, the long-term answer is the one set out by energy secretary, Ed Miliband, in the House of Commons last Thursday, and pursued doggedly by Labour since it came to power in 2024: “Get off our dependence on fossil fuel markets, whose prices we do not control, and on to clean, homegrown power that we do control.”That will take time, though – and it’s not only energy.
Governments are increasingly having to wake up to the fact that they will have to take a closer interest in the supply chains for essentials, from food to rare earths, as the climate crisis and rising geopolitical instability make strung-out, just-in-time supply chains look increasingly fragile,Should hostilities abate in the coming days, energy supplies could be unblocked – but for the moment, as the chancellor, Rachel Reeves, prepares to give the annual Mais lecture on Labour’s latest plans for kickstarting growth, the UK must ready itself for yet another economic shock,
India retain T20 World Cup with 96-run final win over New Zealand – as it happened
It might not have been the thriller neutrals wanted, but it was everything India desired. They became the first men’s team to defend the T20 World Cup and the first to win it at home after drowning New Zealand in a deluge of runs in Ahmedabad in front of 100,000 giddy and almost universally blue-clad supporters.New Zealand looked forlorn while conceding 255 and wretched when attempting to chase it, and after meandering through much of their innings with defeat already a certainty they were still 96 behind when it ended. They have now reached four World Cup finals of various hues since 2015 and lost them all, plus the Champions Trophy last year to boot.The player of the tournament is Sanju Samsondouble quotation markIt feels like a dream! I’m out of words, out of emotions
India retain T20 World Cup as Samson and Bumrah inspire rout of New Zealand
It might not have been the thriller neutrals wanted, but it was everything India desired. They became the first men’s team to defend the T20 World Cup and the first side to win it at home, after drowning New Zealand in a deluge of runs in front of 100,000 giddy and almost universally blue‑clad supporters.New Zealand looked forlorn while conceding 255 and wretched when attempting to chase it, and after meandering through much of their innings with defeat already a certainty they were still 96 behind when it ended. They have now reached four World Cup finals of various hues since 2015 and lost them all, plus the Champions Trophy last year to boot.You know it is absolutely, definitely going to be your day when a fielder drops a catch while blinded and still the ball refuses to come to earth
Tears and drama amid snowboard cross chaos at Winter Paralympics
From their vantage point to the south of the San Zan course, the first sight spectators see of the snowboard cross are figures punching through the horizon. Coming off the back of a left‑hand turn, racers come into view as they make the first of a series of jumps in what is also, perversely, a part of the course where you can pick up speed. The moment is over in a split second, as athletes disappear once again behind safety fences. The impact on the gathered crowds is undeniable though: they can’t help but let out a roar.Snowboard cross is a sport with high technical demands, as athletes negotiate a series of challenges from – to adopt the lexicon – jumps and berms to rollers and drops, all along a winding course
Team GB mixed doubles curlers must beat Italy after ‘psychology’ of China defeat
Great Britain must defeat the host nation, Italy, in their final round‑robin match of the mixed doubles curling to secure a place in the semi-finals, after being roundly beaten by China.Jo Butterfield and Jason Kean started well against the unbeaten pair of Wang Meng and Yang Jun and led at the halfway stage. Missed opportunities and a sharp improvement from their opponents, however, meant a 5-3 lead became a 10-5 defeat, with the eighth end left unplayed.Butterfield said the shift in the match was explained by China getting a better measure of the force needed to “draw”, or land a stone in or in front of the scoring house. “Unfortunately, in the second half they really dialled into what draw weight was
Scotland showcase potential to chase Six Nations title and end pain against Ireland
The feeling that Scotland might just have the hang of this winning thing continues to build. Playing dazzling rugby every now and then has never been a problem. Meaningful wins? Harder to come by.Perhaps the most entertaining part of the extraordinary win against France – and there were, how to put this, quite a few of those – was watching the resolutely unmoved disposition of Gregor Townsend. As if it was no big deal
RFU backs Steve Borthwick despite England’s historic Six Nations loss in Italy
The Rugby Football Union has backed Steve Borthwick to continue as England head coach into the summer and arrest their drastic decline but the chief executive, Bill Sweeney, stopped short of pledging his support through to the World Cup next year.Borthwick is under intense scrutiny after England’s first defeat by Italy on Saturday extended their losing run to three matches following miserable losses against Scotland and Ireland. Austin Healey is among the former players calling for Borthwick to be sacked with England on course for their worst Six Nations campaign, and Ben Youngs, the most-capped men’s player, believes that the side is “set up to just not lose”.England finish their Six Nations campaign against France in Paris on Saturday before they begin their Nations Championship fixtures in July with a daunting trip to South Africa.After the 23-18 defeat in Rome, Borthwick said he was still the man to lead England and expressed belief he had the RFU’s support
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