Iran War Drives Bond Yields Up; Reeves Cancels Fuel Duty Rise

Sovereign yields, the IMF's data desk and the Treasury's cost-of-living politics moved on the same axis on Monday: the Iran war is finally pressing into UK households via the bond market, and the Chancellor is moving to absorb the shock at the pump.

Le Monde reported that global bond yields lurched higher in mid-May as the prolonged closure of the Strait of Hormuz kept oil durably above $100 a barrel. US 10-year Treasury yields broke above 4.5 percent on May 13 for the first time in a year, Japanese 10-year yields hit 2.7 percent — the highest since the 1990s — and French 10-year yields approached 3.8 percent, level with their 2009 highs. UK rates moved within the same global wave. Rexecode economist Anthony Morlet-Lavidalie told the paper markets had revised away their initial assumption that the crisis would pass quickly: "les marchés financiers se disent que la crise n'est finalement pas aussi passagère qu'ils ne l'imaginaient au début." Brent durably over $100 — €86 — made inflation "a mechanical certainty," and Natixis analysts framed the move in one line: "le marché obligataire perd patience."

The IMF gave London a small piece of good news in the same window. It revised its 2026 UK growth forecast up to 1 percent from 0.8 percent, citing more momentum than expected after first-quarter GDP rose 0.6 percent. The Fund pointedly flagged the risks: a prolonged Iran conflict, domestic uncertainty, and wider Hormuz fragility could still derail the upgrade. The revision gives Reeves marginally more political room as she works through the autumn-budget arithmetic.

Chancellor Rachel Reeves used that room. Government sources confirmed she will cancel the 1p fuel-duty rise that had been due in September and is examining whether to scrap the full 5p increase scheduled in 1p stages over six months. The move is the centrepiece of a broader cost-of-living package: pump prices have been the highest-visibility consequence of the Iran-war oil shock, and Treasury whips have spent two weeks managing MP letters and motoring-association warnings.

Transport Secretary Heidi Alexander will set out HS2's full reset in the Commons on Tuesday. Backers hope the first 2026-price cost estimate will land below £100 billion; a revised completion date — pushed out after a series of mismanagement reviews — will accompany the cost number, alongside what officials describe as a renewed delivery framework. The reset will be presented as the end of the current overrun cycle, though Treasury officials privately concede the political case for HS2 has thinned with every published cost revision.

Politics outside the Treasury kept a separate file open. MPs across parties and Muslim community groups condemned the government's response to Islamophobic speeches delivered at a Tommy Robinson rally over the weekend, calling for clearer ministerial pushback. The row sits alongside the wider question of how Westminster polices the line between protest and incitement when the most public face of the far right shares platforms with figures travelling on a US delegation track.