By William Schomberg LONDON, March 3 (Reuters) - British finance minister Rachel Reeves is likely to stick closely to her promises to fix the public finances in a budget update speech on Tuesday that
UK's Reeves treads cautious path in budget update overshadowed by Middle East conflict
Stability and Economic Outlook Amid Global Uncertainty
By William Schomberg and David Milliken
Budget Update and Minister's Statement
LONDON, March 3 (Reuters) - British finance minister Rachel Reeves said she would provide stability for the economy in a budget update speech on Tuesday that was overshadowed by alarm among investors over the conflict in the Middle East.
Revised Forecasts and Fiscal Watchdog Insights
Reeves said fresh forecasts showed inflation and borrowing would be lower than previously thought by Britain's fiscal watchdog although its economic growth projections were expected to be cut.
Impact of Middle East Conflict on UK Economy
The forecasts may soon be overtaken by the impact of the U.S.-Israeli war against Iran which has sent British government borrowing costs soaring on worries about the global surge in energy prices.
Minister's Commitment to Stability
"This government has the right economic plan for our country, a plan that is even more important in a world that in the last few days has become yet more uncertain," Reeves said in her speech to parliament.
"It is incumbent on me and on this government to chart a course through that uncertainty, to secure our economy against shocks and protect families from the turbulence that we see beyond our borders."
Challenges Facing the UK Economy
Inflation and Interest Rates
She stressed the need for stability in the public finances as well as investment in infrastructure.
Britain has the highest inflation among the Group of Seven economies, preventing the Bank of England from cutting interest rates as quickly as other central banks and saddling the government with a high bill for its inflation-linked bonds.
Rising Government Bond Yields and Energy Prices
Government bond yields surged for a second day in a row earlier on Tuesday as investors worried that a doubling of gas prices, if sustained, might prevent the BoE from cutting borrowing costs this year.
Benchmark wholesale gas prices, which make up the largest single portion of Britain's domestic energy price cap, have doubled this week which, if sustained, could push up the next pricing level for the July-to-September period.
Oil Prices and Fuel Duty Concerns
Oil prices have also risen 15%, leading to calls from some motoring groups for the government to reverse an end to the fuel duty freeze currently expected in September.
(Additional reporting by Susanna TwidaleWriting by William Schomberg; Editing by Hugh Lawson)
