UK ministers warned on Thursday that the United States’ escalating conflict with Iran could make the next month’s budget more difficult to balance, raising concerns that the cost of war will spill over into the British economy. According to the UK Treasury, the budget for October has already been revised to accommodate higher spending on defence and security, and the Treasury will face a tighter fiscal window as global oil prices climb.

Defence spending rises as oil prices surge

Bridget Phillipson, the minister for the Cabinet Office, said that the Treasury had to make “harder decisions” because the war has pushed energy prices higher. The Bank of England’s latest inflation forecast shows a 1.1% rise in the consumer price index for the year to 2027, up from 0.8% last year. The Treasury’s budget will need to reflect higher energy costs, which in turn could push the government’s debt-to-GDP ratio higher than the 2025 target.

Prime Minister set to meet Trump at UN

Prime Minister Rishi Sunak is scheduled to meet President Donald Trump at the UN General Assembly in New York early next week. The meeting is expected to focus on the situation in the Middle East and the broader geopolitical fallout. While the Treasury is concerned about the fiscal impact, Phillipson said that the Treasury had no doubt that the Treasury will not be able to accommodate a significant rise in defence spending without cutting other programmes.

Political fallout from past criticism

Andy Burnham, the Home Secretary, has previously criticised Trump’s approach to foreign policy. The Treasury has confirmed that those remarks were not seen as a problem for the upcoming meeting. Burnham’s criticism of Trump’s past statements on Iran has not impeded the Treasury’s preparations for the budget.

Next steps for the Treasury

According to Treasury officials, the budget will be published on Friday. The Treasury will be under pressure to present a balanced budget that reflects the new costs of the conflict. The Treasury will also need to consider how to offset the increased costs of the war, possibly through higher taxes or cuts to other programmes.

Implications for businesses

Small businesses are expected to feel the impact of higher energy costs. The Treasury will need to balance the costs of the conflict with the need for a stable economic environment. The Treasury will also need to consider whether to offer tax relief or other measures to help businesses cope with the higher cost of living.