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Rachel Reeves has defied pleas to axe a punishing fuel duty hike amid warnings petrol could hit £2 a litre. The Chancellor said she will continue with her plan to raise the level from September despite the threat of a cost of living catastrophe triggered by the war in the Middle East.

It comes as the AA and RAC took the unusual step of urging motorists to cut non-essential journeys and avoid harsh acceleration and braking to conserve fuel. Ms Reeves said she would “keep a close eye” on pump prices to stop companies from profiteering from the conflict.

But she admitted the crisis will cause a spike in inflation over the coming months.

The Chancellor’s warning came after Sir Keir Starmer said the longer the war continues, the more likely it is there will be economic damage in the UK.

Concerns over pump prices intensified after Saudi Arabia – the biggest oil supplier in the region – began to curb output at two major fields.

The price of a barrel of oil has rocketed over $100 for the first time in years, with supplies threatened by attacks on infrastructure of major producers in the region.

Iran has also managed to effectively shut the Strait of Hormuz, through which around a fifth of the world’s oil travels.

Analysts say there is a real risk the oil price will reach $150 a barrel, with estimates that would mean £2 a litre petrol for British drivers.

The previous record was 191.4p in 2022, and they are currently running around 140p.

Financial markets have also continued to plunge with the FTSE 100 have shed well over a month of gains since the crisis erupted nine days ago.

Ms Reeves said she was ready to support “a co-ordinated release” of international oil reserves to ease the economic shock of the crisis.

Speaking in the House of Commons following her meeting with G7 finance ministers, she said: “The economic impact of the situation in the Middle East will depend, of course, on its severity and its duration.

“The movements that we have already seen are likely to put upward pressure on inflation in the coming months.”

The Chancellor said the competition watchdog had been ordered to keep a close eye on fuel pump prices and domestic heating oil costs to prevent wartime profiteering.

She told MPs: “I will not tolerate any company exploiting the current crisis to make excess profits at consumers’ expense.”

Shadow chancellor Sir Mel Stride said Ms Reeves’ decisions have left the UK “more vulnerable” to the economic impacts of the conflict in the Middle East.

He said: “Her gross mismanagement has left us far more vulnerable than would otherwise have been the case.

“Inflation was bang on target when we left office, but thanks to (the Chancellor’s) choices, it rose back up to almost 4% last year, the highest in the G7 – and inflation remains elevated. “That is far from ideal, given the threat of a significant further spike in energy prices.

“And of course, extraordinarily, the Chancellor has just now reconfirmed that the Government will press ahead with a rise in fuel duty later this year.”

AA president Edmund King has suggested motorists should change their driving style to be more fuel efficient.

Since the war began on February 28, the average price of a litre of petrol at UK forecourts has increased by 5p to 137.5p, while diesel is up 9p to 151.0p.

Mr King said: “The longer this conflict goes on, the more effect it will have on the cost of oil.

“Any time Brent Crude passes 100 dollars per barrel raises concern across the markets, for the haulage industry and drivers.

“There will be gradual increases in pump prices, but this shouldn’t happen overnight as fuel has been purchased at previous prices.

“Our suggestion is that drivers should not change their refuelling habits but can consider cutting out some non-essential journeys and changing their driving style to conserve fuel.”

RAC head of policy Simon Williams said: “Average petrol and diesel prices have rocketed in the last week and are unfortunately likely to keep on rising, so the situation for UK drivers is looking increasingly bleak.”

Pensioners are also likely to be hit hard by rising energy costs, a former pensions minister has warned.

Steve Webb, partner at pension consultants LCP, said: “Older and poorer pensioners will be hardest hit if energy prices spike.

“It is vitally important that this group is supported to claim the existing help that is available with energy bills, but much more will need to be done if the cost of home heating jumps. It is essential that extra help does not require a complex claims process, as many vulnerable people may miss out”.