Conflict in the Middle East has led to fears of a new inflation crisis (Image: Getty)
Chancellor Rachel Reeves fears another inflation crisis if all-out war breaks out between Israel and Iran.
The Chancellor warned oil and gas prices have surged over the past few days.
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Some in Tehran are threatening to close the Strait of Hormuz, which around 20 per cent of oil passes through on a daily basis.
Families have barely recovered from the shock of Russia’s invasion of Ukraine three years ago, which led to soaring energy and food prices.
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Rachel Reeves warned oil and gas prices are surging (Image: Getty)
Ms Reeves told Sunday Morning With Trevor Phillips programme: "Over the course of this week, oil and gas prices, oil prices have gone up by just over 10%, they're still down compared to a few months ago but of course we're keeping an eye on that.
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"And at the same time, as you say trade routes are very important through the Middle East and we've seen disruption there in the past, partly because of the Houthi attacks for example.
"And so that is a cause for concern.
“What happens in the Middle East affects us here at home, and it’s why, in the Spending Review this week, we invested heavily in our defence, to keep our country safe and protect ourselves and our allies.
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“And it’s also why in the Spending Review this week, we increased investment in our energy security, because we are very dependant on imports of energy.”
David Oxley at Capital Economics explained: “A rough rule of thumb is a $10 rise in the oil price would add about 7p to the price at the pump."
Richard Bronze, head of geopolitics at Energy Aspects, said the current situation in the Middle East is “very significant and concerning” for the economy.
Mr Bronze explained that disruption to shipping in the Strait of Hormuz, off Iran’s southern coast, would have wide-reaching implications as it is the global route for nearly 20% of the world’s oil production.
He added: “It's a narrow choke point so it is a significant weak spot for global oil markets.”
Wall Street giant JP Morgan has more than doubled its chances of a major oil crisis following the exchange of explosives, rising from 7% on Thursday to 17% on Friday.
Ms Reeves has indicated that the UK could "potentially" support Israel amid the conflict in the Middle East.
But the Chancellor insisted the UK has never been involved in "attacking with Israel".
She told the BBC that in the past the UK has helped "defend Israel from attacks" but would not get into what could happen in the future.
Asked if the UK could help Israel in the conflict with Iran, Ms Reeves told the Sunday With Laura Kuenssberg programme: "The (...) thing that we have done in the past is defend Israel from attacks.
"We have never been we've never been involved in attacking with Israel. Those two things are very different.
"But I'm not going to comment on what may or may not happen. This is a very fast moving situation, we do believe that Israel has a right to defend itself.
"We are very concerned around Iran's nuclear ambitions.
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"That would be incredibly dangerous for Britain and the rest of the world if Iran were to develop a nuclear weapon, and so we share those concerns."
Asked whether the UK would come to Israel's aid if asked, the Chancellor told Sunday Morning with Trevor Phillips: "We have, in the past, supported Israel when there have been missiles coming in.
"I'm not going to comment on what might happen in the future, but so far, we haven't been involved, and we're sending in assets to both protect ourselves and also potentially to support our allies."
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Pushed again on whether the UK would deploy assets in support of Israel if asked, she said: "What we've done in the past (...) is help protect Israel from incoming strikes. So a defensive activity."
She added: "I'm not going to rule anything out at this stage (...) it's a fast moving situation, a very volatile situation.
"But we don't want to see escalation, we want to see de-escalation."