War in Iran erodes the chancellor’s headroom and exposes our fragility | Heather Stewart

Mar 29, 2026 - 12:00

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War in Iran erodes the chancellor’s headroom and exposes our fragility | Heather Stewart

Rachel Reeves boasts of the £23bn she has built up against her fiscal rules but now she – or any future steward of the economy – has little space to manoeuvre

It is with no pleasure that I must report a depressing domestic byproduct of the war in the Middle East: headroom chat is back.

Of course, shifts in investors’ appetite for gilts – UK government bonds – are trivial in the context of the bloodshed in Iran and beyond. But as a result of the economic chaos unleashed, gilt yields, which determine the interest rate on government borrowing, have resumed their grip on British politics. And one of Rachel Reeves’s proudest boasts, the £23bn in “headroom” she had built up against her fiscal rules, is in jeopardy.