Starmer must be honest about fuel shortages, inflation, the pound and gilt risks

Starmer and Reeves need to be honest about potentially imminent fuel shortages, the likelihood of UK inflation spiking again, how the pound could come under increasing pressure, and the growing risks now facing the UK bond market

 
This is the harsh warning from Nigel Green, CEO of global financial advisory giant deVere Group, as Prime Minister Starmer today convenes energy majors, shipping groups and insurers to assess the fallout from escalating tensions in the Middle East and the threat to flows through the Strait of Hormuz.

He says: “The UK is more exposed than most advanced economies and that reality needs to be communicated clearly.

“Around 35–40% of our energy is imported, and we remain reliant on global markets for both crude and refined products. Any disruption to key routes feeds directly into domestic prices and economic stability.”

Oil has climbed to around $115 a barrel, while European gas prices are moving higher again. Roughly a fifth of global oil supply passes through the Strait of Hormuz.

Pressure on that corridor is already affecting flows, raising the risk of delays, higher insurance costs and constrained supply reaching international markets.

Nigel Green says the consequences for inflation are immediate and broad-based.

“Energy costs transmit quickly through the system. Fuel, transport, food production and manufacturing all feel the impact. If oil and gas remain elevated, inflation in the UK will inevitably rise again, and it’ll do so faster than many forecasts currently assume.”

The UK has only recently emerged from a period of double-digit inflation driven in large part by energy prices. A renewed surge would arrive at a time when household finances remain stretched and businesses are operating with limited margin for additional cost increases.

He continues: “Chancellor Rachel Reeves is working with an economic framework that depends on inflation easing and stability returning. A sustained energy shock challenges that directly. Higher input costs feed through to consumers, reduce real incomes and complicate the outlook for growth.”

Currency markets are also highly sensitive to these dynamics.

“The UK imports a significant share of its energy. As prices rise, more foreign currency is required to pay for those imports. This widens the trade deficit and places downward pressure on sterling, particularly in periods of heightened uncertainty,” Nigel Green explains.

He adds: “If disruption through the Strait of Hormuz persists, investors should expect greater volatility in the pound and a clear risk of further weakness.”

The contrast with other major economies is becoming more pronounced.

“The US benefits from substantial domestic energy production and is better insulated from global supply shocks. Energy exporters gain directly from higher prices.

“The UK sits in a more vulnerable position, facing higher costs without the same level of protection. That leaves UK assets more exposed in a rising energy price environment.”

Nigel Green warns that the implications extend directly into the UK government bond market.

“Gilts are particularly exposed here. If energy prices push inflation higher again, yields will need to rise to reflect that.

“With UK debt already close to 100% of GDP, higher borrowing costs become a serious issue.

“The UK relies heavily on overseas investors to finance its deficit. If those investors see a weaker pound combined with rising inflation expectations, they will demand higher returns or reduce exposure. This creates additional fragility in the gilt market.”

Financial markets are beginning to respond, but not fully.

“Equities are showing signs of strain, particularly in sectors sensitive to input costs, and bond markets are adjusting to shifting inflation expectations. But broader positioning still reflects an assumption that oil prices will ease and conditions will stabilise.”

The situation in the Middle East remains volatile, with increased military activity and ongoing threats to infrastructure adding to uncertainty around supply.

Political signalling is also contributing to market instability, as US president Donald Trump has indicated a willingness to take control of Iranian oil assets while also suggesting a deal remains possible.

This combination of factors is reshaping how energy markets should be understood.

“Supply and demand still matter, but political decisions, security risks and control over transit routes are now central drivers of pricing. This increases volatility and raises the likelihood that elevated prices persist.”

“The implications for the UK are far-reaching.”

Nigel Green concludes: “Starmer and Reeves need to level with the country.

“The UK is highly exposed to global energy shocks and the risks are rising.

“Investors, businesses and households should be preparing for higher inflation, pressure on the pound, and increased volatility in gilts if disruption continues.”