Reeves Cost-of-Living Fiscal Headroom Eases on Iran Relief; Gilt Yields Below 5% on Week Close
Chancellor Rachel Reeves’s cost-of-living package closes the week with gilt yields back below the 5% line at 4.99% and Brent crude back at $95.20. Friends of Reeves believe there is a world in which she survives a Burnham premiership; the Friday relief rally materially eases the gilt-market positioning for the leadership-transition scenario. The October Ofgem price-cap reset depends on Brent staying in the $88-95 range through mid-summer; the current $95.20 trajectory is at the upper bound of that range.
The 5p fuel-duty extension cancellation is locked until 31 December 2026. Inflation has slowed to 2.8% — the lowest in over a year. With Brent at $95.20 and trending below $95, the inflation-easing path through the second half of 2026 holds. The October Ofgem price-cap reset depends on Brent staying in the $88-95 range through mid-summer; the current trajectory is right at the upper bound. The Bank of England MPC’s decision later this month is the binding macro variable; if Brent moves below $90 next week, the next rate cut remains priced in. The Treasury’s fiscal-headroom calculation eases directly with the gilt-yield retracement below 5%.