Chancellor Rachel Reeves has expressed concerns about the potential threat to “economic stability” in the face of an upcoming challenge to Keir Starmer’s leadership.
Recent official data revealed that the UK economy expanded by 0.3% in March and by 0.6% in the first quarter of the year. This growth, albeit slower than the revised 0.4% in February, indicates the emerging impact of the conflict in the Middle East.
The released figures by the Office for National Statistics were unveiled during a period of political unrest, with Health Secretary Wes Streeting anticipated to step down before contesting the Prime Minister for his leadership position.
Former Deputy Prime Minister Angela Rayner, who is viewed as a potential contender against Mr. Starmer, confirmed that she had been cleared by HMRC of any tax-related misconduct.
Reeves emphasized the efficacy of the government’s economic strategy, stating that her decisions as Chancellor have positioned the economy robustly to tackle the repercussions of the Iran conflict. She stressed the importance of maintaining economic stability to safeguard the interests of families and businesses.
Although not directly addressing the leadership contest, Reeves’ remarks coincide with the rise in UK government borrowing costs due in part to the uncertainty surrounding the Prime Minister’s position following unfavorable local election outcomes last week. While gilt yields have stabilized after an initial surge at the beginning of the week, they remain elevated.
Despite initial estimations of 0.5% growth in February, the Office for National Statistics reported a notable increase in gross domestic product. However, concerns loom over potential setbacks to the recovery, especially with the Iran conflict and domestic political unrest creating additional challenges.
Economists such as Suren Thiru from the ICAEW warned that prolonged political instability could further dampen economic prospects by eroding confidence and triggering financial market volatility, potentially leading to reduced spending and investments.
Acknowledging the strong start to 2026, Yael Selfin, chief economist at KPMG, anticipates a fading momentum as the repercussions of the Iran conflict materialize.
TUC General Secretary Paul Nowak emphasized the need for sustained economic growth and measures to ensure fair distribution of benefits, especially amidst escalating living costs and concerns over the impact of the Iran conflict.
Senior economist Simon Pittaway from the Resolution Foundation noted the UK’s strong economic performance at the beginning of the year but cautioned that the Iran conflict could impede growth, reduce household incomes, and escalate government borrowing, posing significant challenges for any future government initiatives.
