The economic repercussions of Donald Trump’s confrontation with Iran are swiftly reshaping the global economic landscape, rendering Rachel Reeves’ Spring Statement outdated and less impactful.

Prior to the conflict, there were promising signs of recovery, particularly within the UK’s service sector. Business optimism was on the rise, supported by ten consecutive months of positive reports from purchasing managers, bolstered by a growing confidence from both businesses and consumers.

However, maintaining this momentum becomes challenging amidst the Gulf tensions. Take South Korea as an example; its dynamic economy, renowned for its robust electronics and creative industries, would seem resilient against economic pressures.

Yet, concerns about potential energy shortages and a looming interest rate hike led to a dramatic 12 percent drop in shares on the KOSPI index, marking the steepest single-day decline in 46 years, while the Korean Won also depreciated significantly.

In her address to the Commons, Reeves emphasized the benefits households might see from reduced mortgage costs. But the critical question remains: for how long can these savings last?

The escalation in energy, insurance, and shipping expenses threatens to derail the Bank of England’s, along with other central banks’, efforts to control inflation effectively.

Inflation fears: Smoke rises following an airstrike on Tehran. The conflict has sparked a sharp surge in energy prices, insurance and shipping costs

So far, the price reaction has been nowhere near as severe as four years ago when Russia attacked Ukraine and gas pipelines to the West gummed up.

The US and British policy response then was to assume the rise in inflation was transitory and that interest rates safely could remain low.

Easy money is the classical formula for averting slump and may have prevented a prolonged recession. It also led to a cost-of-living crisis with voters in the UK and the US now fixated on affordability.

This will be the ultimate dilemma for the Bank of England’s interest rate fixers when they convene on March 19. At the last meeting it was assumed more cuts from the current 3.75 per cent were certain. 

Now there is little certainty. Divided rate-setters will not want to give their blessing to an inflation spike, and may well desist.

One major forecaster, the NIESR, is even predicting 4 per cent. In the eurozone, where key rates hover around 2 per cent, sentiment has changed, with a hike seen as a possibility. 

Unless there is a sudden end to hostilities, the Old Lady will not ease policy – so no cheaper mortgages any time soon.

Venture capital hit

The Chancellor’s do-nothing moment was made possible because so many tax rises, notably the freeze on income tax thresholds, are baked in the cake and yielding an estimated £67billion of extra revenues a year for the Exchequer by 2030-31.

That, inevitably, will stifle enterprise and aspiration. So much for the growth agenda! 

Buried among Reeves’ autumn tax rises was a decision to reduce the income tax benefit on investing in venture capital trusts from 30 per cent to 20 per cent.

The trusts offer UK investors opportunity to back Britain’s new wave of innovative companies in artificial intelligence and biomedical research.

They allow asset managers, such as listed Foresight Group, to harvest

investments not just in London and the South East, but also across the regions and nations.

The last time that the tax relief was downgraded – from 40 per cent to 30 per cent by Gordon Brown in 2006 – it led to a dramatic fall of investment in the trusts, and it took two decades for volumes to catch up.

The Treasury’s hatred of tax reliefs is in its DNA. If the Chancellor is serious about refuelling the growth agenda in her ‘Mansion House’ speech this summer, she could rescind the measure.

Every little change would help.

Military plunderers

War in the Middle East underlines the value of a robust defence sector and resilient British suppliers.

It would be precisely the wrong moment to allow private equity ghouls Tinicum and Blackstone, following an earlier reported approach by Advent, to gobble up UK aerospace parts maker Senior.

Flight refuelling innovator Cobham, satellite champion Inmarsat, and submarine sonar pathfinders Ultra Electronics have already fallen into the hands of predators, with a loss of command and control.

Peter Kyle, the Business Secretary, needs to bare his teeth, invoke the National Security and Investment Act and end this plunder.

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